The Spanish Government may be forced to restructure taxation laws for non residents if found to be in breach of the EC Treaty.
The European Commission referred the Government to the Court of Justice following allegations of discrimination regarding Capital Gains Tax (CGT).
As the law in Spain currently stands, any person who is non-resident, is liable to pay an astonishing 35 per cent on profits from the sale of a house. This is deemed to be prejudicial because residents only have to pay a maximum of 15 per cent of the same tax.
The Capital Gains Tax law may be in contravention of the EC Treaty because EU member states agreed to four fundamental principles; free movement of goods, persons, services and capital. If Spain is encouraging investors to bring money into the country but heavily taxing them for taking it out, it is not complying with free movement of capital. Also if it is discriminating against non-residents who are members of the European Union, it is breaking the convention of free movement of persons.
The ruling is expected to find that Spain is in breach of the EC Treaty. A precedent for this was set with the Fokus case. On 23rd November 2004 the EFTA (European Free Trade Association) Court ruled the Norwegian tax credit system was discriminatory and runs contrary to the “free movement of capital rule.” Norway will be changing its tax laws but has appealed to the Supreme Court and it will be considered this month. The case has already shaken up countries such as Italy, France and Germany and is expected to make an impact on Spain.
Until the law changes the bullet points below indicate whether you may be exempt from CGT or eligible for a reduction.
Non residents can apply for reductions but are not exempt from CGT.