WRITTEN QUESTION P-2279/02

by Carles-Alfred Gasòliba i Böhm (ELDR) to the Commission

(18 July 2002)

Subject: Modification of the Spanish Law on personal income tax

The draft act partially reforming personal income tax in Spain (which is governed by Law No 40/1998 of 9 December 1998) was published, along with other tax rules applicable in that country, in the Boletín Oficial de las Cortes Generales on 5 June 2002. The act is due to become law on 1 January 2003.

Article 77 of the above Law sets out the tax arrangements applicable to Spanish citizens who derive income from units held in collective investment undertakings, irrespective of whether these are based in Spain or abroad. The amendment that the Spanish government is seeking to introduce would see tax benefits being granted to unit-holders who reinvest the units they hold in non-corporate organisations in other types of unit fund. The tax benefits would not apply to transfers from or to corporate organisations. Given that the majority of the corporate organisations operating in Spain are foreign organisations, could this not be construed as the Spanish authorities impeding free competition or imposing some other form of de facto protectionism?

Do these new provisions comply with the judgment of the Court of Justice of 5 June 1997 in case C-398/95 (SETTG) and Article 49 of the EC Treaty, which prohibits any restrictions liable to discourage the activities of service suppliers, irrespective of their nationality?

In any case, is the Commission aware that the modification which the Spanish authorities intend to introduce under this reform, as regards the applicable tax treatment of reinvestment

by Spanish citizens in Spanish and European non-corporate collective investment undertakings harmonised under Directive EEC/85/611(1), will have a discriminatory effect on European corporate collective investment undertakings operating in Spain?

(1) OJ L 375, 31.12.1985, p. 3.

Answer given by Mr Bolkestein on behalf of the Commission

(2 October 2002)

The Commission has taken note of the Bill on the reform of Personal Income tax (regulated in the law 40/1998 of 9 December 1998) and other fiscal measures applicable in Spain, as published in the Spanish Congress Bulletin.

Council Directive 85/611/EEC of 20 December 1985 on undertakings for collective investment in transferable securities (UCITS), as well as its successive amendments, do not contain any tax provisions on UCITS, whatever their legal form is (with or without legal personality).

However, according to constant case-law of the Court of justice of the European Communities, even if direct taxation falls under the exclusive competence of Member States, these cannot, however, fail to respect Community rules, and must exercise their competence in the respect of Community law(1).

As the Honourable Member points out, there appears to be a risk of subsequent restriction of competition and even a new barrier to freely provide services throughout the Union, as these companies might feel obliged to change their legal form to a fund in order to be able to continue operating in Spain in a profitable way(2), whereas at the same time they would no longer be able to take into account a preference by subscribers in other Member States for companies.

There also appears to be a danger of indirect discrimination of foreign investment companies that operate under corporate form.

The Commission has already contacted the Spanish authorities to ask for an explanation of the reasons that have led to the introduction of a difference in the tax treatment of the tax payer depending on his investment in common funds (without legal personality) or in investment companies (under a corporate form) in the meaning of Article 1.2 of Council Directive 85/611/EEC. If the reply does not eliminate the doubts that may occur as to the compliance of the new provisions (if the bill were adopted as it is) with Community law, the Commission may envisage to take the necessary steps that are at its disposal as guardian of the EC Treaty.

(1) Cases C-279/93 Schumacker, judgment of 14.2.1995, C-80/94 Wielockx judgment of 11.8.1995, C-107/94 Asscher judgment of 27.6.1996, C-250/95 Futura Participations judgment of 15.5.1997, C-250/95 Singer judgment of 15.5.1997, C-118/96 Safir judgment of 28.4.1998, C-264/96 Imperial Chemical Industries judgment of 16.7.1998, C-311/97 Royal Bank of Scotland judgment of 29.4.1999, C-35/98 Verkooijen judgment of 6.6.2000.

(2) Cases C-270/83 Commission v France, judgment of 28.1.1986 y C-398/95 SETTG, judgment of 5.6.1997.