International taxation refers to the measures and procedures adopted by countries to regulate the taxation of cross-border transactions and ensure fair taxation. In Spain, as in other countries, international taxation is based on international agreements, EU directives and national legislation.

1. Directives within the EU:

As a member of the European Union, Spain is bound by several harmonised directives designed to promote cooperation between the tax authorities of the Member States.

The most significant rules in practice include:

Anti-Tax Avoidance Directive (ATAD):
This Directive includes measures such as interest limitation rules, CFC rules (Controlled Foreign Corporation) and the Exit Tax. It is intended to prevent profits from being improperly shifted to low-tax jurisdictions.

Directive on Administrative Cooperation (DAC):
The DAC governs the exchange of information between tax authorities. DAC6 is particularly relevant, as it requires tax advisers and companies to report potentially aggressive cross-border tax arrangements.

Application:

A Spanish company with a subsidiary in another EU country must ensure that all transactions are carried out on market terms and comply with the arm's length principle. Documentation requirements help the tax authorities identify improper profit shifting.

2. International Standards Outside the EU

Outside the EU, Spain also follows international agreements and standards designed to ensure fair taxation.

Important international rules include:

Double Taxation Agreements (DTAs):
Spain has entered into agreements with more than 90 countries to prevent double taxation. These agreements determine which country has the right to tax specific categories of income.

OECD BEPS Initiative:
The BEPS measures (Base Erosion and Profit Shifting) are aimed at preventing tax avoidance through the shifting of profits. Spain has implemented all 15 measures, including the Common Reporting Standard (CRS), which enables the automatic exchange of information on financial accounts.

Application:

Each year, Spain receives financial information concerning taxpayers in Spain from more than 100 countries, including information on income, bank accounts, interest and dividends.

3. National Implementation in Spain

EU directives and international standards are increasingly reflected in Spanish national law. In particular, the Law on Measures to Prevent and Combat Tax Fraud (Ley de Medidas de Prevención y Lucha contra el Fraude Fiscal) contains provisions implementing international standards designed to combat tax avoidance, including measures addressing hybrid arrangements and reporting obligations for international tax structures.

Application:

Spain requires taxpayers to report foreign financial accounts, real estate and investments with a value exceeding €50,000 annually through Modelo 720. This reporting obligation is intended to prevent tax evasion and increase transparency.

 

4. Practical Example of International Taxation

The following practical example illustrates how international taxation operates:

A taxpayer resident in Spain owns an apartment in Germany which is rented out. The taxpayer also has a bank account in Switzerland and another account in Luxembourg.

Application of the Rules:

1. Reporting obligation:
   The taxpayer must declare the foreign assets (real estate and bank accounts) through Modelo 720.
   
   
2. Double Taxation Agreement:
   The rental income from Germany is treated in accordance with the Double Taxation Agreement between Spain and Germany. Germany, as the source country, has the right to tax this income. However, as the taxpayer is resident in Spain, Spain must also take this income into account when calculating the taxpayer's worldwide income. Double taxation is avoided in accordance with the DTA by granting a credit for the tax paid in Germany.
   
   
3. Automatic exchange of information:
   The bank accounts in Switzerland and Luxembourg are reported to the Spanish authorities under the CRS. This enables Spain to verify that the interest income generated by these accounts is correctly taxed.
   
   
4. Monitoring:
   The Spanish Tax Agency (Agencia Tributaria) verifies whether the information declared in Modelo 720 corresponds to the data reported by foreign banks. In the event of irregularities, substantial fines may apply.

Conclusion

Spain implements international tax rules through a combination of national legislation and the implementation of EU and OECD standards. These procedures include detailed reporting obligations and strict controls aimed at combating tax avoidance. Within the EU, tax policy is more harmonised and cooperation between tax authorities is generally more extensive than with non-EU countries.

Our law firm will be pleased to assist you in analysing your individual circumstances, handling the necessary administrative procedures on your behalf and preparing and filing the relevant tax returns. If you are interested or have specific questions regarding this matter, please feel free to contact us by email or telephone.

Author: 

Lisa Wörfel
Tax Advisor
info@sspartners.es
Tel: (+34) 951 12 13 06
Facebook I LinkedIn I Amazon