Business Over Tapas

Editorial:

As the fuss begins to die down over the Cyprus bank 'money grab', perhaps some investors in Spain will be thinking – either take my money abroad, or, perhaps, it's time to invest in property. Who knows, we may see some positive stories in the months to come about the rising demand for land and housing.

Housing:

As from 1st June 2013 every property in Spain for sale or rent will now need an Energy Performance Certificate. This is a new law in Spain that is being formalized on the 1st June 2013 by Royal Decree    There's a useful explanation (by a private company) here.

Spain to Change its Planning Laws (Article from the AUAN):   The Spanish government in Madrid has published proposed changes to its national Land Law (Ley de Suelo) aimed at reinvigorating the country's ailing property market. The home-owners association, AUAN, has formally submitted suggested modifications in order to address some of the gaps and injustices which they believe have caused such a loss of confidence in particularly the Andalucian real estate market.

The group's suggested revisions include protecting the fundamental right to enjoy a property acquired in good faith and steps to be put in place to ensure that compensation is paid up front before a property is demolished. They further suggest that individuals should have the right to be compensated by public authorities when they are found to be at fault.

It is also suggested that the supply of public services should not be denied to properties currently categorised as outside of an urban area.  According to Mrs Hillen, 'We have many members whose properties are earmarked to become urban. They can easily be connected to existing public services but are not permitted to do so because of the wording of existing legislation. Thus, some homeowners are forced to wait years to connect to a pylon across the road causing needless hardship which benefits nobody. We are suggesting that the government recognise the reality of rural life as it is on the ground and allows the law to reflect that reality.'

In this vein, the group also calls for a clarification in the law regarding the illegal division of rural land for the creation of building plots, an act which, currently, is never proscribed from prosecution.  'In a large number of cases these plots are now occupied by dwellings giving rise to the strange situation where the house is so old that its existence cannot be challenged but the plot can be called into question at any time, with very messy legal implications', said Mrs Hillen.

Other suggestions made by the group also call for the true reflection of the planning and legal situation of properties in the Land Registry, a requirement to inform third-party purchasers of any legal action against their property in order that they may represent their interests in court and improved transparency in the planning process.

The national Land Law (Ley de Suelo) takes precedence over regional laws and any regional legislation must reflect any changes made to it. President of AUAN Maura Hillen said 'There have been over forty amendments to regional and national laws in the last ten years to try and deal with problems, including the latest Decree, but nothing has been of much help to our members, most of whom are British families who invested their life-savings in a Spanish property in good faith, only to find themselves in a legal limbo due to the confusion and ineffectiveness of different authorities and government departments.

'Because the Junta de Andalucía has consistently failed to provide adequate measures to address the problems, we sincerely hope that the central government in Madrid will consider our suggestions and be willing to take the necessary steps to restore some confidence in the housing sector, and lift the threat of homelessness from the shoulders of thousands of investors who bought property here in good faith.'

The Government is preparing a new law (Proyecto de Ley de Medidas de Flexibilización y Fomento del Mercado del Alquiler de Viviendas) to make it difficult to rent out a 'holiday home' in an attempt to help the hotel business, according to Idealista who says: 'The proposed law on rents that the Government is preparing contains rules that will prevent many home-owners from renting their homes and holiday apartments, something that will mean a loss of income for many families, so as to try to benefit the Spanish hotel industry. If the proposal is approved as it stands, the new legislation will also reduce the freedom enjoyed by citizens to be able to choose how to enjoy their holidays and it will also jeopardize part of the income that currently accrues to the tourist industry, according to the Asociación de Gestores de Viviendas de Uso Turístico'... More on this here.

'Village for sale in south eastern Lugo, five buildings and some land...'. This is just a taste of the sort of property offered by the peculiar Abandoned Villages site 'Aldeas Abandonadas y Pueblos Deshabitadas'.

Finance:

Whose to Blame for the Credit Crunch? (From El País in English).  'Speaking on national television recently, Juan Rosell, the president of the Spanish Confederation of Business Organizations (CEOE), described Spain's credit crunch as "terrible, appalling." Which is all well and good, but he then went on to say that he understood why banks aren't lending money: "I probably wouldn't lend money to those who the banks are turning down because the rate of non-repayment in Spain is very high: at the moment, it's around 11 percent." His comments were not well received by the business sector, who pointed out that Rosell sits on the board of Caixabank.

Between mid-2009 and the end of 2012, bank loans to Spain's private sector fell by 9.2 percent, a reduction of some 172 billion euros - equivalent to 17 percent of GDP - according to a report entitled The financial restrictions on Spanish SMEs: the importance of bank loans, written by Joaquín Maudos, an economic analyst at the University of Valencia. SMES - companies with between 10 and 249 employees - have been worst hit by the credit freeze. Between them, they employ 74.5 percent of the Spanish workforce, according to the report. Aside from being scarce, credit is expensive, with 80 percent of SMEs saying that the cost of financing has risen'...    (More here).

'It would be disastrous if hard-liners in the EU forced Madrid to squash the faint stirrings of recovery by harsh measures of consolidation with still more brute force. This would put to the test once more the amazing ability of suffering of the Spaniards'. This is not a statement from the Minister of Finance, Cristóbal Montoro, or from the PSOE, which are demanding a loosening in the objectives of deficit for Spain. It comes from an article in the Handelsblatt, a leading financial newspaper of Germany. The editorial by the journalist Anne Grüttner warns that no further cuts should be imposed on a country like Spain, which continues to work with the EU in rescuing other countries while suffering high rates of unemployment: "what would happen in Germany if we had a mass unemployment of more than 26%? What would happen if Germany was being forced by EU members to cut its budget by almost 5% in a single year? What would happen here if we reduced salaries to civil servants and boosted the IVA and University fees?', she asks in the editorial.  More at Expansión.

The Director of the German Federal Employment Agency, Frank-Jürgen Weise, says that Germany needs 200,000 qualified workers each year from the southern countries of Europe – Greece, Italy, Spain and Portugal, and is particularly looking for engineers, doctors and nurses.

Foreign investors lodged 30,374 million euros in Spain during January, according to Cinco Días. In the preceding months running up to January (the latest records on file), foreign investors had pumped 105,314 million euros into the country (September 2012 – January 2013).

In 2012, the creation of new companies and businesses reached its highest level in four years, with over 87,000 new empresas, according to El País. This, partly as rules to open new companies in Spain were relaxed slightly last year.

Gloomier news comes from Expansión, which says that a daily average of 200 self-employed people ('autónomos') have quit their jobs over the past five years, from figures supplied by the union of self-employed workers 'La Unión de Asociaciones de Trabajadores Autónomos y Emprendedores'. In February 2008, there were  3,398,863 self-employed workers in Spain compared with the 2,995,754 by the end of February 2013; a loss of 11.86% or 403,109 self-employed workers in Spain. 

El País has a study on the increasing disparity of employment and wealth between the North and the South of Spain. The País Vasco, Madrid, Navarra and Cataluña are richer than the national average, while Extremadura, Andalucía, Castilla-La Mancha and Murcia are increasingly poorer. Andalucía, for example, has fallen from the 2008 national average GDP of 0.77 to the current 0.74.

Tax:

Spain and United Kingdom have signed a new treaty to avoid double taxation between the two countries (From the La Moncloa Government website). 'When it comes into effect (within three months of its ratification), this treaty will replace the agreement signed in London on 21 October 1975 between Spain and the United Kingdom of Great Britain and Northern Ireland, to avoid double taxation and prevent personal income and wealth tax evasion. ("Official State Gazette" of 18 November 1976).

The new treaty updates the text of the former document, which had become out-of-date in certain regards due to the considerable period of time that has elapsed since it first came into effect.

This update has led to the text being adapted to both the requirements arising from current economic and trade relations between Spain and the United Kingdom, and the successive changes that have been made to the OECD's Model Agreement on double taxation. A response has thus been given to the main problems that the previous treaty was unable to resolve, including the treatment of residents not domiciled in the United Kingdom and trusts.

The new agreement means a considerable reduction of source-based taxation, establishing exclusive residence-based taxation for those dividends derived from majority shareholdings, as well as for interest payments and fees. Furthermore, it includes an arbitration clause for the resolution of any conflict that may arise from applying the new agreement.

Spain is thus moving forward in its commitment to renegotiate all those agreements that, due to the passing of time and the strong economic relations maintained with certain countries, need to be adapted to the new status quo. A new treaty was also signed between Spain and Argentina to avoid both double taxation and tax evasion on 11 March, which will replace the agreement signed in 1992'.

World Asset Declaration:

A PowerPoint presentation in English on how to file the Declaration of Asset outside Spain from LexTax Consulting in Jávea can be found here. Hacienda Form 720 filled out with English translations here.

The world Asset Declaration. First of all, is it lawful?      The Majorcan law firm DMS Consulting has filed a complaint against Spain before the European Commission for having approved tax provisions, that oblige the taxpayers, residents in Spain, to present Informative Statements over assets and rights abroad:

'DMS Consulting considers that this new obligation, enforceable for 2012, is against Community Law, as it implies a clear and important restriction to the free movement of people and capitals, set out in Articles 21 and 63 of the Treaty on the Functioning of the European Union.

The reported regulation is Law 7/2012 from the 29 of October, which introduces the new obligation to inform, Royal Decree 1558/2012 from the 15 of November that develops it, and Order HAP/72/201, which approves the statement application (Application 720) and establishes that it must be presented by telematic means.

The lawyer, from DMS Consulting, who filed the complaint (formalised last 26th of February), Alejandro del Campo, warns that the regulation is disproportionate, as it affects many people, due to the burdensome penalty system it provides (penalties starting from 10.000 Euros and even almost “forfeiture of the non-declared asset) and for the complexity of its proceedings, that will oblige, practically all of the cases, the individuals to search for professional advice and cover the cost of that service. It is also unjustified, as since the 1 of January 2013 legal tools exist in the European Union, that allow a more efficient administrative cooperation in the taxation field...'  (German version here).  

- The “process” issue is key.  Holders of foreign assets are now being coerced into reporting those assets under a process that may well be soon declared in conflict with EU Norms and thus illegal. But the way it is portrayed here, the provision of such detailed information, even under duress, is “voluntary”. That means that it would be very difficult later on, to claim any compensation or other protection, for example in the case of a special levy against those declared assets. And once that information is provided it can’t be retrieved or cancelled.

A petition to the European Parliament has been sent, as follows:-

The Petitioners welcome Spain's efforts to tackle corruption, money laundering and tax evasion. They believe, however, that the measures now being adopted by the application of Decreto Real 1558/2012 are too blunt a tool to do this efficiently: the aim of any fiscal policy should be to pluck the tax-paying goose so gently that it will continue to lay its golden eggs.

The Petitioners believe that a better, sharper, tool could be forged by building on existing measures such as the EU Savings Directive and internationally agreed information exchanges to counter these abuses while respecting individual rights to property and privacy as guaranteed by the European Union and the Spanish Constitution.

In the case of EU nationals who have retired to reside in Spain, their assets are more often than not the accumulation of savings from taxed income built up over a lifetime of work in the country of their nationality and held solely to provide financial security in their final years. Their assets held outside Spain are not wealth that has been syphoned out from the Spanish economy by corrupt politicians, money launderers or tax evaders; rather the money they have brought to Spain to buy property and to fund day-to-day living costs has generated employment and has brought benefit to the Spanish economy.

The Petitioners believe that the reporting baseline asset value could be doubled or even quadrupled without adversely affecting the collection of data and its quality. Indeed reducing the volume of asset reports to be filed would have a beneficial effect by easing pressure on the Agencia Tributaria (and financial consulting companies) so allowing them to focus on and tackle any serious abuses.

The Petitioners also believe that the reporting format demanded does not recognise the various and differing ways in which assets can be held outside Spain, whether in trust funds, managed accounts, Individual Savings Accounts, Personal Equity Plans or whatever, and their differing reporting periods. Similarly earnings derived from shares can be reported at different times of the year and in a number of formats, so making any historical calculation of 'wealth' in the required manner difficult if not impossible, especially within the short time-scale allowed. (This has been recognized by the “Your Advice Europe” service to be a serious form of discrimination.)

The Petitioners believe that the penalties to be imposed for late filing, omissions or errors are disproportionate, and would, in many circumstances, be greater than the asset involved. Deliberate false filings should, of course, be dealt with - but penalties for minor errors or omissions should be capable of modulation to match the nature of the failure.

The Petitioners are concerned about the fine detail they are being required to file through financial service companies who may not properly protect their computer databases against unauthorised access, and which would thus provide information of use to internet fraudsters and scammers.

The Petitioners request the Petitions Committee and the Parliament to intervene immediately with the Spanish authorities urging them to postpone the asset reporting deadline from April 30 2013, sine die, pending adequate clarification and simplification of the reporting process. This must include assurances from the Spanish government that the process is in full compliance with relevant EU norms, Directives, etc, and well as the Spanish Constitution itself.

In view of the urgency of the situation, the established asset reporting deadline being April 30, 2013, the Petitioners request the Petitions Committee to admit this petition without delay and with a view to engaging the EU Commissions as quickly as possible, in the belief that this matter should be addressed as a matter of priority by the European Court of Justice. The Petitioners, while drawing attention to the attachments to this petition, may wish to add supplemental information in due course.

An opinion on the World Asset Declaration follows at the end of this Report.

Politics:

With all the scandals and suggestion of corruption, why does no one ever resign? Well, in fact they do, but, as El Huffington Post reported recently, it's only ever the small fry. 'Spanish politicians have become known, especially in recent months, for being unable to recognize their mistakes and to resign. But, in reality, this is not quite the case. The strategy being adopted by parties against corruption is to force out a few small players to protect the leaders, that are 'saved' and shielded in their seats with a 'presumption of innocence' and in waiting for more advanced judicial action, which comes along rather slowly in Spain...

The Cyprus Bailout:

...While the bailout plan is simply catastrophic for Cyprus, it is quite advantageous for Germany and its banks and the treasuries of the core euro zone nations. First, as with the case of the four previous euro zone bailouts (Greece, Portugal, Spain and Ireland), the euro game goes on since so many vested interests are at stake and a chaotic dissolution of the euro zone might have apocalyptic consequences. Indeed, in spite of claims by the German ministry of finance to the contrary, even Cyprus' exit from the euro (Cyprus' economy amounts only 0.2% of the EU GDP)might have unintended consequences such as contagion... (From Truthout)

Ron Paul (maverick American GOP Politician) comments on the 'Great Cyprus Bank Robbery' with an interesting point: '...Especially affected have been the elderly, who were unable to use ATMs or to transfer money electronically. Despite the fact that ATMs severely limited the size of withdrawals during the two week-long bank closure, reports indicated that account holders who had access to Cypriot bank branches in London and Athens were able to withdraw most of their funds, leading to speculation that there would be no money available when banks finally opened up again. In other words, the supposed Russian oligarch money may well be already gone'...

Various:

The Princess Cristina, wife of disgraced businessman Iñaki Urdangarin, has been indited to appear before the judge on April 27th to explain her role in the Instituto Nóos Affair. 'Justice is the same for all', says Rubalcaba for the PSOE; 'better late than never', is the line from the far-left IU. The state senior Anti-corruption Prosecutor meanwhile considers the judge's call to be 'unfounded and without proper cause'. The BBC also covers the story: 'Spain's Princess Cristina has been summoned to appear in court over allegations that her husband misused millions of euros of public money.  It is reported to be the first court summons for a direct descendant of the Spanish king. She is King Juan Carlos's youngest daughter. Her husband, Iñaki Urdangarin, denies wrongdoing and has not been charged.  He is suspected of having massively overcharged local authorities for organising sporting events. It is alleged that some of the money ended up in companies controlled by Iñaki Urdangarin - who is the Duke of Palma and a former Olympic handball player - in offshore bank accounts. The events allegedly happened between 2004 and 2006, when the duke stepped down as head of the non-profit Nóos Institute.  He and his former business partner Diego Torres are suspected of misusing millions of euros in public funds that were given to the institute - a charitable foundation'...

While we continue with our policy of building a network of high-speed trains (the Almería to Murcia link, when finally completed, will apparently have so few passengers, it has already been mooted as a speedy goods carrier), ordinary trains are being reduced and stations closed. A map showing these 'cutbacks' in ordinary passenger trains, and closed stations, is here in an article titled 'A million passengers to suffer the suppression of trains'. The reduction of trains by the Minister of Development Ana Pastor will mean the loss of 779 train rides per week (23.1% of all voyages) and 172 small (very small – one passenger a day) stations to close.

Basi, the company that has made Lacoste (the 'little alligator on the breast' people) under licence since 1962, have downsized and let 17% of their workers go in an early retirement scheme (ERE). The company, based in Barcelona, says that it will no longer manufacture clothes using the French-owned Lacoste brand.

Lastly:

The World Asset Declaration: an opinion received:

STATEMENT ON THE DECLARATION OF ASSETS OUTSIDE SPAIN

This is not yet about taxation. The full implications are unknown.

This is about the comprehensive Asset Declaration the Hacienda requires residents to submit by April 30, 2013. Many ex-pats fear they are being targeted and will be defenceless.

This is seen as intrusive, discriminatory, exploitative, and deceptive, and as a means by which the Agencia Tributaria (AT) seeks to entrap foreign residents in Spain, threatening disproportionate penalties for non compliance while providing minimal and confusing guidelines.

It is about the impossible demands the requirement makes.

This is about the financial consequences for communities where large portions of their population are foreign residents.

 This concern is already becoming well known in the international community, in Spain and abroad.  The damage won’t stop unless urgent corrective measures are taken.  This is not a threat, just reality.

FULFILLING THE REQUIREMENTS of the Asset Declaration is:

Impossible because:

• Taxpayers and even ‘gestores’ and accountants find the financial information to be collected from outside Spain and submitted incompatible with the data fields of form 720; Gestores and accountants themselves lack clear guidelines and issue confusing and even contradictory advice to clients, who must bear the consequences for errors or omissions

Intrusive because:

• It violates personal data protection norms, asking for sensitive personal data some would not even release to family members-against EU data protection norms.
• Laws requiring those who are aware of others evading taxes or involved in fraud to report these to the authorities could turn neighbours and friends against each other and be socially disruptive. 

Discriminatory because:

• It will disproportionately affect the majority of non Spanish residents who are much more likely than Spaniards to have assets abroad, or not hold them in or via Spanish Financial institutions. The Your Europe Advice unit of the EU Commission agree and further said the differing reporting systems also discriminate against many non Spaniards with assets abroad.
• Non-Spanish residents see corrupt administrations at every level and big time Spanish tax cheats and fraudsters apparently enjoying immunity from prosecution. The latter ignored two amnesties designed to repatriate money they hold by the billions in fiscal paradises, whereas those with legitimate assets abroad based on life savings are now being targeted;
• They see incredible waste and incompetence as the order of the day in Spain and see themselves somehow as being made to pay for this,  relieving the “moral hazard” from the guilty for their misdeeds or mismanagement,  while receiving less and less service for more and more taxes;
• The measure will hit those who are registered on the padrón,  have become fiscal residents, file annual tax returns, etc.  The thousands of ex-pats, who live in the coastal areas without doing any of these, may not bear any of asset declaration or subsequent tax burdens.

Exploitative because:

• This measure mainly targets assets that derive from life savings earned (for which taxes already have been paid in other countries) never having had anything to do with Spain;
• Expatriates believe they already pay for services they receive either through IBI or specific taxes and charges for utilities, refuse collection, etc. They believe they receive little value for their current IPRF let alone additional tax burdens.

Deceptive because:

• The asset declaration, while billed as an information gathering system only opens the way to special levies, penalties, taxes,  i.e. a disguised form of “corralito” or outright money grab. It treats everyone as a suspect and is placed in the context of anti-fraud legislation and tax evasion, even before there is any evidence of either fraud or evasion;
• There is no reference to the protection against double taxation offered in existing bilateral taxation accords nor any promise not to use the declaration to review and reassess previous tax returns.

Entrapment because:

• The assets declaration exercise has been announced as a means to detect tax fraud, and whether or not that may be the case, residents are demanded to provide detailed information which can be used almost as evidence against themselves (in Spanish courts the accused can refuse to testify if their words can be used against them- why should this be different?).
• No government agency will guarantee that the information provided will be secure and not misused, given what is seen in the media these days.  And if it is misused or improperly disclosed, what will be the recourse once the information is “volunteered” under duress? Why should non Spanish residents be expected to trust the authorities more than the Spanish themselves do?
•  It is by no means clear that the measure is legal either under relevant EU norms, or even the Spanish constitution. Will the Spanish government guarantee this compliance? If not, why should residents cooperate in an illegal process?
• For good reason, why should foreign residents in Spain have any confidence in Spanish financial institutions given the failure of several and the recent ‘preferente’ and bank guarantee scams such as those involving Bankia, CAM, etc? Having just witnessed the Cyprus asset grab,  why should they thus risk their hard earned lifetime savings and investments, especially when the asset declaration process may violate EU law?

Consequences:

1. For the declarants:

•  Due to the excessively complex and detailed reporting process which does not correspond to non Spanish record keeping,  it is almost impossible to avoid making errors in reporting the details of assets abroad, especially because this must be done through a third party (tax accountant,  gestor, etc.) who may not understand either the form of the foreign asset nor, for language reasons, what he or she is being paid to input; 
• As a result, since errors are the responsibility of the asset holder, not the reporting agent,  many asset declarants may be found guilty of a serious misdemeanor, if not a criminal offence before they have a chance to declare, or prove their innocence.

1. For the local communities where the declarants (the foreign residents) live:

• Foreign residents will choose to leave Spain, leaving behind even more unsold houses, severely impacting on the local economy; 
•  This will serve as major deterrent for future potential property buyers and ‘immigrants’.  Discontents will make their stories known- the internet is a powerful weapon;
• Those who come here will not register on the ‘padrón’  and will avoid becoming fiscal residents, whether they live most of the time here or not;
• If residents see their principal assets here at risk of additional takes or even seizure, they will cease to maintain or upgrade them, nor will they purchase cars, appliances, etc.;
• If heavy tax burdens emerge or are threatened as a result of the asset declaration,  residents will minimize their spending on restaurants, entertainment and local purchases;
• Residents will minimize and reduce their exposure to local financial institutions and even draw down their accounts to the minimum (as in Cyprus);
• The reputation of Spain as a secure place to purchase property and to enjoy retirement will be further damaged, just as the governments are trying to attract new buyers for the hundreds thousands of unsold dwellings on the market. This will especially hit the coastal areas.