New tax reform and Boomerang effect

In Spain, however, it seems as if we are striving for the opposite. We are growing closer to what appearing to be a yearning of many, and the result will be that all companies prefer to remain small or medium-sized and that Spanish companies avoid having any presence abroad.

Repeating a statement does not actually make it true, and so many successive governments regardless of their “colour” strive to accuse companies–especially the vilified “big corporations”–of paying less taxes than other taxpayers. That statement is false. It is therefore important to remember certain contrastable matters that may perhaps help to better assess the tax reform that is approaching.

If it were not for the increasing fiscal pressure introduced in Spain by the former government in 2015 and 2016 and that almost exclusively affected large and medium-sized companies, we would not have been able to reduce the particularly painful deficit following the emergency measures taken in December 2016. As we have already pointed out, these measures force large and medium-sized companies to finance the Public Treasury for free, advancing amounts on account knowing that the State will have to return (without interest) in a few months or years.

Establishing a minimum tax of 15% on accounting profits would be one more step in the wrong direction, as it would not only be a breach of the already depleted constitutional mandate of paying based on actual tax contribution capacity, it would also breach most of the international treaties Spain belongs to. We must not forget that such international treaties take precedence over national laws.

Half truths

When big Spanish companies are said to pay 8% this is only half true, since it all depends on how percentage is calculated, and that calculation may be read many different ways. If one of the objectives of the aforementioned reform is for foreign companies operating in Spain (especially digital ones) to pay taxes in our country, we will need to admit that all other countries do the same and that Spanish companies operating outside of our borders shall pay taxes in those countries where they operate.

Our current legislation and our international commitments follow that idea, which is why the profits of Spanish companies that have already paid (we insist, they have already paid) a high amount of foreign taxes are exempt when they arrive in Spain.

However, if in order to determine the percentage of tax that Spanish companies pay we consider the profit obtained abroad but not the tax paid abroad, we will be confusing apples with oranges. The correct calculation forces us to compare “Spanish” tax versus “Spanish” profit, or total global tax versus total global profit, but that calculation should not be confused.

Unfortunately, a scourge of tax fraud exists in all countries, but combatting it cannot be done using a “one size fits all” mentality. Unfortunately, treating compliers and non-compliers equally does not encourage more compliance, but rather the opposite.

It is encouraging that legal security is being proposed, but to accompany that statement with the announcement of major corporation reform without determining the timing and effects of the same will result in the opposite, and above all, it paralyses any domestic or foreign investment that could be achieved.

We will have to wait to finish evaluating the scope and consequences of the tax reform in question, but from what we know today, we must positively assess the introduction of the environmental element and the fight for gender equality. However, we cannot positively assess a tax reform that does not acknowledge that large and medium-sized companies are also taxpayers, as well as significant creators of employment and wealth in general. Tax reform that continues to “squeeze” certain types of taxpayers will have a boomerang effect as said companies will necessarily transfer those costs to their customers or employees.