Tax Newsletter - November 2020 | Legislation

Romania-Spain tax treaty published

The December 3, 2020 edition of the Official State Gazette (BOE) published the Convention between Romania and the Kingdom of Spain for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance, made in Bucharest on October 18, 2017.

Following are the main elements of this treaty that have replaced the one currently in force:

1. Dividends:
   
   1. The standard tax rate is 5%.
   2. The rate is 0% if the beneficial owner is (i) a company which holds for more than one year, directly or indirectly, at least 10% of the capital of the company paying the dividends, or (ii) a pension scheme which is resident in the other Contracting State.
2. Interest: The tax rate is 3%. However, the Protocol states that if under domestic law the interest arising in a Contracting State is exempt from tax in that State, the rate is reduced to 0%.
             
   In certain cases relating to public financing (or similar matters) interest is exempt.
3. Royalties: In general, royalties may be taxed at 3%.
4. Capital gains: Gains obtained from the alienation of shares (other than those in which there is substantial and regular trading on a stock exchange), or comparable interests, deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State. Immovable property used by a company in the ordinary course of its business is not taken into account in determining that percentage.

The Protocol states, among other provisions, that nothing in the treaty prejudices the right of each Contracting State to apply its domestic rules relating to international tax transparency.

It will enter into force on January 14, 2021. However, its provisions on income derived on or after the first day of January in the calendar year will have effect in the calendar year next following the year in which the treaty enters into force (January 1, 2022).

The provisions of articles 23 (mutual agreement procedure), 24 (exchange of information) and 25 (assistance in the collection of taxes) have effect from the date of entry into force (January 14, 2021), without regard to the taxable period to which the matter relates.

Cape Verde-Spain tax treaty published

The December 2, 2020 edition of the Official State Gazette (BOE) published the Convention between the Kingdom of Spain and the Republic of Cape Verde for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital, done at Madrid on June 5, 2017.

The main elements of this treaty are described below.

1. Dividends:
   
   1. The standard tax rate is 10%.
   2. The rate is 0% if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividends.

2. Interest: The tax rate is 5%. The competent authorities of the Contracting States must by mutual agreement settle the mode of application of that reduced rate.
                      
   In certain cases relating to public financing (or similar matters) interest is exempt.
3. Royalties: The standard rate is 5%. The competent authorities of the Contracting States must by mutual agreement settle the mode of application of this limitation.
4. Capital gains: Gains from the alienation of shares or other participation rights deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.

1. regarding taxes accrued periodically, in respect of taxes on income relating to any fiscal year beginning on or after the date on which treaty comes into force (inclusive);
2. in all other cases, on January 7, 2021.

The contents and designs of the record books kept on the information sharing system (ISS) have been adapted

The November 24, 2020 edition of the Official State Gazette (BOE) published Order HAC/1089/2020 of October 27, 2020 adapting the contents and the designs of the record books kept on AEAT’s website on the immediate information sharing system (ISS) to the latest changes to the legislation, and adjusting them to the assistance needed by and recently made available to taxable persons.

Namely:

1. Starting on January 1, 2021 record books can be kept for certain intra-Community transactions (as set out in paragraph 1.3 of article 66 of the VAT Regulations) on the ISS. This record book must be kept as a necessary requirement to be able to apply the new rules on supplies made under agreements to sell consignment stock.
              
   To cover this, the order approves the functional specifications for the elements of the XML messages for entering and amending entries in these record books.
2. Secondly, technical enhancements have been added to the legislative and technical specifications implementing the rules on recordkeeping, to help taxable persons correctly perform their tax obligations associated mainly with completing their VAT self-assessments.
                       
   Namely (i) a mark has been added to the invoice record book to identify, optionally, the input VAT paid on acquisitions and imports of capital goods; and (ii) new fields have been added so that if the taxpayer decides to deduct input VAT in a period after the period it was recorded, they can specify this and also state the fiscal year and period in which they will exercise this right.
3. Lastly, it provides that (i) the entities subject to Law 49/1960, of July 21, 1960, on horizontal property (ii) the social enterprises referred to in article 20.Three of the VAT Law which are included in the ISS, must report the acquisitions of goods or services they make outside any trading or professional activity in the same way as they are required to report transactions with third parties on their annual information return (form 347), when they are not included in the ISS.

VAT rates on certain medical supplies and for face masks have been reduced and certain corporate income tax credits have been amended

The November 18, 2020 edition of the Official State Gazette (BOE) published Royal Decree-Law 34/2020, of November 17, 2020, on urgent measures to support the solvency of businesses and support the energy sector, and in the tax field.

The tax measures it has approved include:

• Taking effect on November 1 2020 and until April 30, 2021, the zero VAT rate has been kept in force for domestic supplies, imports and intra-Community acquisitions of certain medical supplies related to COVID-19, where the customers are not-for-profit public entities and hospitals. Moreover, it has reduced from 21% to 4% the VAT rate on imports and intra-Community acquisitions of disposable surgical face masks in effect from November 19, 2020 and until December 31, 2021 (see our alert ).
• Certain provisions regarding the Canary Islands Economic and Tax regime have been extended until 2021 (see our alert ).
• The scope of the credit for  film and audiovisual investments has been broadened and the time limit for incentives directed at the automotive industry has been amended (see our alert).

Azerbaijan-Spain tax treaty published

The November 7, 2020 edition of the Official State Gazette (BOE) published the Convention between the Republic of Azerbaijan and the Kingdom of Spain for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital, done at Baku on April 23, 2014.

The main elements of this treaty are described below:

1. Dividends. The standard tax rate is 10%. However, they may be taxed at 5% if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends and has invested more than 250,000 euros or its equivalent in any other currency in the company paying the dividends.
2. Interest. The tax rate is 8%. However, in certain cases involving public financing (or similar matters) interest may be exempt.
3. Royalties. They may be taxed at 5% if they are royalties paid for the use of or the right to use computer software, any patent, trade mark, design or model, plan, secret formula or process, or for the information concerning industrial, commercial or scientific experience. In all other cases, they may be taxed at 10%.
4. Capital gains. Gains derived by a resident of a Contracting State from the alienation of shares or comparable interests deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.

The Protocol includes an addition to article 5 on permanent establishments and a limitation on treaty benefits clause.

The treaty will enter into force on January 13, 2021. However, in general its provisions will have effect on January 1, 2022. Namely:

1. in respect of taxes withheld at source, on income derived on or after January 1, in the calendar year next following the year in which the treaty enters into force (namely on January 1, 2022);
2. in respect of other taxes on income and taxes on capital, for taxes chargeable for any tax year beginning on or after January 1, in the calendar year next following the year in which treaty enters into force (namely, on January 1, 2022).