New Spanish tax inspections approved focusing on foreign real estate investment and SOCIMIs

Spain has approved a new set of general guidelines in its Annual Tax and Customs Audit Plan for 2023, known simply as the "Plan de Auditoría Tributaria Española 2023" (Spanish Tax Audit Plan 2023). New features include the control of SOCIMIs (public limited investment companies, created to encourage long-term investment in the Spanish property market) and non-residents who own real estate in Spain, who will have to pay Wealth Tax.

Below we highlight the main actions, some of them new and some of them reiterative, that the Spanish Tax Audit Plan 2023 foresees for this year, especially in the field of international taxation by the law firm Ashurst.

As a novelty, the Spanish Tax Agency is expected to focus its attention on the following:

• Control over the SOCIMIs and, in particular, over compliance with the requirements for investment and distribution of dividends to their shareholders provided for in the regulations. Likewise, according to the Official State Boletin (BOE), "their shareholders will be monitored for the dividends they may be receiving, checking the reality of the financial transactions between company and shareholder for the possibility that they may be concealing dividends".
• Control over e-commerce platforms.
• Control and regularisation of purchases of regional tax residence.
• From the perspective of Wealth Tax, control over property entities owned by non-resident individuals, when these entities are non-resident entities that own real estate in Spain. To this end, they will use the information on real estate and companies from the General Council of Notaries available to the Tax Agency itself. Work plans will also be implemented on the basis of available information on beneficial owners of opaque companies resident in Spain that own high-end residential real estate assets.
• Streamlining the exchange of available information (from both national and international sources) to reinforce control actions, both in the preliminary phase of selection of candidates to be audited and in the development phase.
• Increasing the number of Joint Audits (which are tax audits carried out simultaneously with Tax Administrations of other jurisdictions).

As in previous years, the Spanish Tax Agency is expected to continue to carry out the following actions:

• Reinforcement of face-to-face visits by tax inspectors to the places where economic activity takes place (following the COVID-19 pandemic).
• Control of operations carried out with virtual currencies.
• Control over the effective application of anti-abuse rules, such as those aimed at limiting the deductibility of financial expenses, anti-hybrid rules and those aimed at preventing abuse of tax treaties.
• Monitoring of CIT and VAT groups, in particular focusing on the composition of these groups.
• Tax audits to check whether non-resident recipients of Spanish source dividends, interest or royalties qualify as beneficial owners, in order to avoid abuse of EU legislation.
• Preferential attention to taxpayers with negative tax bases and other tax credits pending offset in CIT.
• Control of transfer pricing strategies.
• Tax audits focused on identifying structures unduly benefiting from the low taxation of non-cooperative jurisdictions or preferential regimes.

Non-residents with property in Spain in the spotlight

Non-residents who indirectly own property in Spain are one of the profiles on which the Tax Agency is going to focus the most this year, especially after the recent modification of Law 19/1991, of 6th June, on Wealth Tax, which includes Law 38/2022, of 27th December.

The Government took advantage of the regulation on the new taxes on banks, energy companies and large fortunes, in force since December 2022 (one day after it was published in the BOE), to introduce a change in Wealth Tax so that non-residents who own property in Spain through a company are subject to this tax, just as non-residents who own property directly are currently subject to it.

According to experts consulted by idealista/news, the origin of the tax change responds to the Treasury's objective of equalising the taxation of non-residents who own property directly and indirectly in Spain, as until now foreigners who owned property directly were subject to Wealth Tax, while if the property was owned indirectly, through a company, they did not have to pay the tax. However, as the amendment is drafted, its implications go beyond that.

For example, and beyond a foreigner who owns property in the name of a company, it may affect non-residents who have investments in funds if at least 50% of their portfolio is made up of real estate located in Spanish territory.

Law firms, tax advisors and consultants claim that the wording "has gone too far", that "it has a very generalised application and affects multiple situations" and may even generate "discriminatory situations" between residents and non-residents. And, although they expect a correction from the Treasury, they warn that this change, which has gone virtually unnoticed, could reduce foreign real estate investment in Spain or at least postpone it.

And faced with the doubt as to how the tax authorities are going to locate the physical owners behind the companies and carry out the checks, José María Mollinedo, secretary general of the Treasury Technicians' Union (Gestha), explains to this newspaper that "the investigation will not be simple in the event that this taxation is hidden, but not impossible, as it will be possible to cross-reference the information on the properties in our country with the highest cadastral value and which are not owned by a resident natural or legal person, in order to then investigate each non-resident natural person who may be behind each of these large properties, and once their real ownership has been determined, it will be verified whether they meet the two aforementioned requirements for the taxation of these values in the Wealth Tax".

He adds that "the verification of large fortunes and business conglomerates is not the core of the activities carried out by 80% of the AEAT staff, but there are a number of people assigned to the verification of discrepancies in this type of relevant wealth". Mollinedo recalls that "a research project on opaque companies allows the automated identification of the users of high-value homes (over one million euros) located in Spain whose formal ownership corresponds to foreign companies whose real owners are unknown", and insists that "the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes continues to make progress in improving transparency and the exchange of information".

With regard to any doubts that may arise about this tax change, the secretary general of Gestha reminds us that "there is always the possibility of consulting the Directorate General of Taxes to clarify any doubts about taxation before the end of the deadlines established for the exercise of the right, for the filing of the tax return or self-assessment".