SPAIN - Rented out real estate properties - European Commission opens infringement procedure against Spain

May 2019

On 5 March 2019, the European Commission announced the opening of an infringement procedure against Spain on the grounds that it grants discriminatory tax treatment to non-residents who obtain rental income of housing for habitual use, as opposed to tax residents in Spain.

The European Commission accordingly sent a formal notice to the Spanish government stating that, in this particular case, Spanish law restricts the free movement of capital within the European Economic Area under Article 63 of the Treaty on the Functioning of the European Union (TFEU), providing them with two months to prepare a detailed reply on the infringement imputed to it.

If Spain’s reply does not convince the European Commission, it will send it a reasoned opinion explaining why it considers that Spanish law infringes European Union law. At that time, a formal request will be made to comply with European Union law, granting Spain a period to report on the measures adopted to comply.

Specifically, the specified tax discrimination is based on the fact that tax residents who receive income from real estate capital for renting a dwelling for habitual use are, under article 23.2 of the Personal Income Tax Law, entitled to a 60% reduction on the net income obtained. However, this reduction is not contemplated for non-resident owners of real estate properties.

This is a difference in treatment that clearly unduly restricts the free movement of capital within the European Economic Area, as it gives better tax treatment to residents in Spain who obtain income from renting housing, compared to non-residents who receive the same income.  

The opening of the infringement procedure may open the door for non-resident taxpayers who did not apply the reduction to request the rectification of the self-assessments submitted and apply it to them, requesting the corresponding tax refund. It is important to bear in mind that the limitation period for the right to request such refunds is four years.

Thus, non-residents who wish to rectify the self-assessments submitted and apply the aforementioned reduction for renting a dwelling for habitual use should bear in mind that this is a procedure that is initiated at the request of the taxpayer (and cannot be initiated by the Administration), and they will be able to rectify all non-resident forms submitted during the last four years, which is the limitation period.

It should be noted that the European Commission has opened other infringement proceedings against the Spanish State in similar cases:

• The infringement procedure in relation to the rules on Inheritance and Gift Tax, considering that this hindered the free movement of persons and capital within the European Economic Area. This ended with a ruling issued by the Court of Justice of the European Union which put an end to discrimination against non-residents with regard to this tax, making it necessary to modify the rules and opening the door to claim the refund of overpaid taxes paid by non-residents in Spain.
• The infringement procedure in relation to the declaration of assets and rights located abroad is in the process of being resolved, as the European Commission has issued a reasoned opinion in which it explains that it is a discriminatory and disproportionate regime in the light of Community jurisprudence, and that it violates the free movement of persons, the free movement of workers, the freedom of establishment, the freedom to provide services, and the free circulation of capital. The Commission also granted a period to amend the legislation that was not complied with, and will bring an action for non-compliance before the Court of Justice of the EU, which could end up overturning that regime.

Ignacio Gridilla
ignacio.gridilla@bdo.es

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