Spain’s new tax laws demand greater transparency and responsibility – Grant Thornton

Forward planning and compliance with the new tax laws is essential, cautions Eduardo Cormen, senior partner at Grant Thornton

The partial implementation of Spain’s new tax laws in early 2015 and a modification and simplification of citizens’ contributions via income tax (IRPF) and of taxes on corporate income that came into force mid-year now obliges greater personal and corporate transparency and demands law firms be more vigilant and responsible, according to Eduardo Cosmen, senior partner at Grant Thornton in Madrid.
The firm is one of the world’s largest independent audit, tax and advisory practices, with offices across more than two dozen US states and with a presence in Europe, Asia, Africa and the Middle East.
“Last year was one of big and constant changes,” he told Iberian Lawyer. The year ended with parliament approving important tax changes as part of the fiscal reform. Cosmen said Grant Thornton is attentive to the base erosion and profit shifting (BEPS) plan on behalf of the Organization for Economic Co-operation and Development (OECD) as a move towards reforming and harmonising international fiscal rules. The new laws include amendments relating to the tax treatment of hybrid instruments and Spanish-controlled foreign company rules, allowing for the avoidance of the imputation of foreign low-taxed income.
Most significantly, the law also gradually reduces the corporate income tax rate to 25% in 2016, while eliminating most of the tax deductions and other benefits. This is bound to create a more transparent tax environment, Cosmen said.
“It will enforce greater transparency, with international groups offering much more precise information, and implies a big challenge to law firms to be much more rigorous and responsible,” he said.
The law also does away with several tax credits, including the environmental investment credit, the reinvestment credit and the profit investment credit, which will be replaced by a capitalisation reserve.
He added that at local level, however, the new tax law brings in much greater faculties for the Spanish tax authorities, and lawyers will have to be much more vigilant to avoid heavy-handedness against the rights of taxpayers.
While the new laws reduce citizens’ taxes, further changes are planned for 2016.
“One of the challenges brought by the new tax laws is ensuring that they do not serve as a brake on development and as an obstacle to companies’ international expansion,” he added. Clients should be aware that, within this complex and demanding regulatory framework, forward planning and compliance with the new tax laws is essential, to ensure obstacles do not arise.
He warned against law firms “starting a war by themselves” while advising companies in complying with their fiscal responsibilities. “Law firms must be capable of fitting that advice hand in hand with other professional practices,” he said, adding that serving a company’s management demands much more awareness of its business, its rules and possibilities, while striving to add value to a company’s operations.
“Our clients’ businesses change and along with that, our way of dealing with them also changes. Their strategies and expansion plans, their implementation of technology, and the taxation of those companies should be seen as a tool of support and not one of impediment,” he said.
Asked whether Grant Thornton plans to expand its tax practice over the coming years, Cosmen said the firm’s raison d’être should not be growth in itself, but that it is necessary that the firm is able to accompany clients in all of their needs in order that their businesses function in an optimum manner.
“Taking into account that Grant Thornton is a firm of professional multi-disciplinary services, the tax practice should complete and complement all other services, which means offering integral solutions in the internationalisation of companies, in their investment and divestiture activities, and to facilitate their landing in Spain,” he said.
He added that this increase in the firm’s activity demands that it increases the number of partners, and particularly of specialists able to respond to the greater complexity brought by the new laws and allow the firm to better get to know the practices and problems in all sectors of the economy.