Insights

The Spanish law 11/2021 of 9 July on measures to prevent and counter tax fraud, transposing Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, amending various tax rules and on the regulation of gambling (the “Law”), entails a substantial change for Spanish open-ended investment companies with variable capital (SICAVs).

This Law, among other things, introduces new requirements for Spanish SICAVs to continue to benefit from the 1% Spanish corporate income tax rate.

Before the Law, SICAVs with at least 100 shareholders benefited from a 1% corporate income tax in accordance with article 29.4.a) of the Spanish law 27/2014, of 27 November 2014, on Corporate Income Tax (Ley del Impuesto sobre Sociedades), the verification of which was the responsibility of the CNMV.

Traditionally, SICAVs in Spain have been used as a method of managing large estates, concentrating high percentages of their shareholding in one or several persons, while the rest of the shareholding was distributed among shareholders with small stakes.

This new Law aims to ensure that only undertakings for collective investments benefit from reduced tax rates. It will impose that only shareholders with a certain stake in the company count for the minimum number of shareholders, to avoid the undermining of the collective nature of SICAVs.

New requirements

From 1 January 2022, Spanish SICAVs may continue to be taxed at 1%, provided that the SICAV has a minimum of 100 shareholders that shall:

• hold shares in the SICAV for a net asset value of at least €2,500 per share or, €12,500 per share in the case of a compartment of a SICAV at the moment of subscription; and
• hold shares in the SICAV for at least three quarters of the financial year.

Hedge funds, undertakings for collective investments (“UCIs”) that act as master of feeder SICAVs (Master-Feeder) and Exchange Trade Funds (ETFs), are exempt from the above rule.

The Spanish Tax authorities will verify compliance with these requirements as from the financial year starting 1st January 2022.

Transitional regime

The Law approves a transitional regime for those SICAVs that resolve for winding up and dissolution during the financial year 2022 and carry out all necessary acts within the following six months until their deregistration.

These SICAVs will enjoy the following tax benefits:

• The dissolution of the company will be exempt from the Corporate Transactions category of the Transfer Tax (Transmisiones Patrimoniales) and Documented Legal Acts (Actos Jurídicos Documentados).
• The SICAV will continue to be taxed at 1% until its deregistration.
• The income from the liquidation of the SICAV will not be included in the taxable base of your income tax return (IS, IRPF or IRNR) if you reinvest the totality of this income in Spanish SICAVs that do comply with the requirements established in the Law, or in Spanish mutual funds. The shares acquired by way of reinvestment will have the same value and date as those of the SICAV being liquidated. Although partial reinvestment is not permitted, the possibility of reinvesting the entire profit in one or more UCIs is foreseen within the seven months following the end of the period for the approval of the resolution of dissolution going into liquidation.
• Acquisitions of shares which are subject to transfer tax as a result of such reinvestment shall be exempt from such taxation.

Alternatives

In view of the above, we can conclude that the amendment introduced by the Law means that from 1 January 2022, Spanish SICAVs that do not have at least 100 shareholders with a net investment of at least €2,500 per share and do not start the transitional regime will be subject to 25% of Spanish corporate income tax.

Given this, Spanish SICAVs have several options:

• to dissolve and liquidate pursuant to the transitional regime;
• to comply with all the requirements of the new Law;
• to merge and or be absorbed into other SICAVs or UCIs; or
• to migrate to another jurisdiction

The article was co-authored by Georgia Milne Aboitiz.