WRITTEN QUESTION E-3656/00

by Klaus-Heiner Lehne (PPE-DE) to the Commission

(27 November 2000)

Subject: Difference in treatment under Spanish tax law

With regard to the taxation of real property owners, Spanish tax law makes a distinction between Spanish citizens and persons who do not have Spanish nationality. This means that EU citizens who are not resident in Spain but possess real property there have to pay income tax as well as wealth tax to the State. Persons no residentes en España (non-resident in Spain) have to pay income tax once a year at the rate of 2 % above the cadastral value. The wealth tax for persons no residentes en España is also payable once a year, the basis of assessment for this tax being the value of the property at the date of purchase.

In addition, when real property is sold in Spain a distinction is made between residents and non-residents for the purposes of profits tax. Vendors of real property who are not resident in Spain are taxed at a standard rate of 35 % on their capital gain whilst the rate of tax for vendors resident in Spain is only 20 %.

This gives rise to the following questions:

1. Is the difference between the treatment of EU citizens who own real property in Spain but are not resident there and real property owners who are resident in Spain compatible with the prohibition on discrimination on the ground of nationality, which is an established fundamental freedom?

2. What measures does the Commission intend to take if this difference in treatment is incompatible with the prohibition on discrimination, not justified on objective grounds and does not comply with the principle of proportionality?

Answer given by Mr Bolkestein on behalf of the Commission

(24 January 2001)

The Commission would inform the Honourable Member that the tax arrangements applicable to European citizens owning property in Spain but not resident there were examined in Written Question E-1380/99 by Mr Swoboda(1), and would refer him to the answer to this Question.

As a general rule, Spanish legislation levies income tax and wealth tax on non-rented property which is not a main residence; profits on a sale form part of the income of the year of sale. The chargeable events and taxable amounts are identical for residents and non-residents; however, there are differences in the rates applied and personal allowances.

The annual notional income from this type of building amounts to 2 % of its rateable value (Law No 40/1998 on individual income tax, Article 71(1), BOE 10.12.1998, and Law No 41/1998 on non-residents' income, Article 23(5), BOE 10.12.1998). For residents such income is added to their worldwide income which is taxed on a sliding scale up to a marginal

rate of 48 % (39,6 % for the State and 8,4 % for the autonomous regions (Law No 40/1998, Articles 50 and 61); up to the 1998 tax year the rate could be as high as 56 %). However, for non-residents, a general flat-rate amount of income tax (25 %) applies (Law No 41/1998, Article 24(1)(a)). In the Commission's view non-residents are only put at a disadvantage if their worldwide income, hypothetically subject to Spanish tax in the same way as that of residents, does not attain a marginal rate of 25 % (for 2000 such a rate applies for a taxable income of PTE 2 142 000 ( 10 684). In such an unlikely event, the Commission would consider that the Spanish authorities should only apply the amount of tax that would be payable by residents.

The profits (defined in Law No 40/1998, Articles 31 and 32) earned by non-residents on the sale of property in Spain which is not a main residence are taxable in Spain (Law No 41/1998, Article 12(1)(g)) at a standard rate of 35 % (Law No 41/1998, Article 24(1)(f)). However, a rate of 18 % applies to profits earned by residents who were owners for more than one year (Royal Decree 3/2000); if the building is sold during the first year, profits are taxed according to the sliding scale referred to above. In such a case the conditions mentioned above would have to apply (in 2000, a marginal rate of 35 % is attained at a taxable income of PTE 4 182 000 ( 20 859) for the Commission to conclude that non-residents were being treated less favourably. However, it does consider that there is clear discrimination as a different flat rate is applied. It has brought this to the attention of the Spanish authorities and reserves the right to initiate formal proceedings under Article 226 of the EC Treaty if legislation is not brought into line with the requirements of the Treaty.

The sliding scale for property tax applies equally to buildings owned by residents and non-residents. However, residents receive a basic allowance of PTE 18 000 000 ( 89 783). This would only discriminate against non-residents if their assets outside Spain were worth less than that amount.

(1) OJ C 27 E, 29.1.2000.