Spain brought before the European Court of Justice over discriminatory treatment of taxpayers who are not residents – CSN News

The European Commission decided on Wednesday to bring Spain before the Court of Justice of the European Union for its discriminatory treatment of nonresident taxpayers. Spain did not remedy a violation related to free movement of capital that was opened in December 2021. The EU has intervened, claiming that state authorities have “not been sufficiently effective”.

Spanish tax law allows resident taxpayers the option to defer their capital gains tax, if they pay for the transfer of assets in installments over a longer period. This is said to provide “a cash-flow benefit”, according the Commission. For non-residents, the situation is quite different. Capital gains are taxed based on the accrual method, which means that the tax is collected at the time the asset is transferred.

Non-residents are not allowed to defer the payment of tax even if the payment is made in installments. This creates a cash flow disadvantage for them compared to resident citizens. The EU stated that the difference between resident and non-resident taxation “violates” the principle free movement of money, as it “imposes a more burdensome structure of taxes on non-residents”, causing “an unjustified obstruction to cross border transactions”.

The Commission sent an official notice to Spain earlier on Wednesday asking that it allow direct expenses to be deducted when calculating the tax withholding on royalty payments made across borders.

CJEU allows member states to withhold tax from cross-border royalties, but requires that they deduct directly related costs when determining what tax is appropriate. Brussels decided to send an opinion with reasons to the Spanish authorities. They will have two months to reply and take any necessary steps. If they do not, the Commission could refer the matter to CJEU.