Commission refers Spain to ECJ for rules on capital gains and employment income
Capital gains of non-residents
Spanish law provides for different tax treatment of capital gains depending on whether the taxpayer is resident or non-resident in Spain. According to rules which are available only to individuals resident in Spain, capital gains on assets derived from immovable property are subject to progressive taxation if the assets remain within the possession of the taxpayer for less than one year, and to a flat rate of 15% when the assets are realised after one year of possession.
Similar capital gains of non-resident individuals are on the contrary always taxed at a flat rate of 35%. The legislation entails therefore a higher tax burden for non-residents, a fact which the Commission finds discriminatory.
Spain has not changed its legislation despite the Commission’s formal request of July 2005. The Commission decided therefore to refer Spain to the ECJ.
Employment income of non-residents
The ECJ will also examine Spanish rules on taxation of employment related income. Non-resident individuals are generally subject to a final withholding tax at a rate of 25%, whereas resident individuals are taxed according to a progressive scale. In the latter case, individuals resident in Spain can benefit from a more advantageous tax rates ranging from 15% to 45%. The difference in treatment is most evident in cases when the resident taxpayers receive a comparatively low income, as the income is in such cases subject to the lowest tax rate. This application of different rules for residents and non-residents is therefore considered to be in breach with Article 39 of the EC Treaty.
Read the press release.
