Spanish Holding/ ETVE

Spanish Holding/ETVE

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Main concerns regarding the application of the special tax system for foreign shareholding entities (Spanish Holding/ETVE)

The main features of this scheme are as follows:

1. Their corporate purpose must include: the corporate values’ board, management and

administration of non-resident companies in Spanish territory.

For the accomplishment of their social object, the ETVEs must be organized with the

corresponding material and personal means. Sufficient organizational means are not to

control the management of the ETVE, but to exercise the rights and fulfill the obligations

deriving from the condition of partner, and make the decisions relating to profit sharing in

non-resident companies.

The special tax system of the so-called Spanish Holding / ETVE is ruled by the Companies Tax Law, in articles 107 and followings.


It cannot be companies whose main activity is the management of movable or real-estate heritage. The representative values of the shareholding in the ETVE must be nominative.The option for the tax system must be communicated to the Public Ministry. This plan will be applied during the taxation period in which it was solicited and successive, except renouncement.There are no impediments to joining a Group of Companies as established in the DSL.

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Main concerns regarding the application of the special tax system for foreign shareholding entities (Spanish Holding/ ETVE)

2. Company form conditions:



3. Taxation of income earned by the ETVE:

A) Dividend exemption from non-resident

participating companies.

B) Exemption from capital gains coming from

the transfer of shareholdings.

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Minimum stake of 5% , or stake with a purchase value greater than 20 million E. and being held

during the previous year at the time of payment of dividends, or for 1 year.

The participating company must be subject to, and not exempt from a tax of identical or similar

nature to the Spanish Corporate Tax. This condition is presumed fulfilled when the participating

company is resident in a country that has signed a Convention to avoid double taxation with

Spain.

Non-resident participating companies must carry out activities outside Spain.

Non-resident companies cannot be resident in a tax haven.

Conditions of exemption / % shareholdings in companies



If the ETVE carries out other activities or earns other income, it will be taxable in Spain (for example,

management services or financial income).

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4. Other income:



5. Taxation of the profits distribution at the expense of exempted income:

5.1. Non-resident partners (natural or legal person):

If the partner is not resident in a tax haven, it will be considered

that he has not earned any income in Spain, whether it is

regarding dividends or tax exempt capital gains.

If the benefit corresponds to another kind of income (services,

financial, etc.), for which the ETVE will have been taxed in Spain,

the non-resident will be taxed for that perception for real

obligation, and the Conventions of Double Taxation and the

Matrix-Subsidiary Community Directive will have to apply.

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a) Legal Entity: the benefits will be eligible for the exemption if it fulfills the conditions set

out in Article 21 of the DSL.

b) Natural person: the received benefit of the ETVE will be considered income from the

integrated savings of the tax payable base (article 108,1b).

5.2. Resident partners:


6.1. Non-resident partners (natural or legal person): Income coming from reserves with returns exempt as those referred to in Article 21 of the DSL, or with differences in values attributable to the shareholdings of non-resident entities as those referred to in this article, will not be considered as earned in Spain.

6.2. Resident partners: Natural person: the system provided in the Personal Income Tax Act applies for the gains and losses of assets: the obtained profit will be included in the special part of the tax base.

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6. Returns obtained by the transfer of ETVE’s shareholdings,

separation of partners or ETVE liquidation:


6.2. Resident partners: Legal entity: when the transmission value of the ETVE is greater than its theoretical book value, it is necessary to differentiate the following assumptions:

1) If the return matches with undistributed ETVE benefits, the exemption can be applied to avoid double taxation. 2) If the return corresponds with differences in value attributable to the investments held by the ETVE in non-resident entities:

3) Income corresponding to differences in value attributable to the rest of the ETVE's assets, its returns will not be exempted.


6. Returns obtained by the transfer of ETVE’s shareholdings, separation of partners or

ETVE liquidation:

a) If the conditions of article 21 of the DSL are fulfilled so that the capital gains obtained during the transmission of the shareholdings are exempted, then these returns are also exempted. b) If the conditions of Article 21 are not fulfilled, the returns obtained will not be exonerated.

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If the collector is subject to the Corporate Tax, fulfills the

minimum participation requirement of 5% in the ETVE, and has

a minimum holding of 1 year of seniority, he may apply the

exemption in the terms established in the section 21 of the

DSL.

Similarly, he may apply the exemption provided in section 21

of the DSL for the part of the return earned that corresponds to

differences in value attributable to the interests of non-

resident entities that fulfill the conditions set out in that

section.


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Ex. dividends / capital gains


Team

Jordi Rovira Esteve Partner Tax Law

[email protected]

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