A reform against credit flow

Internationally it has been shown that one of the elements that most contributes to tax fraud is legal insecurity and uncertainty.

In tax matters, there are currently three relevant bills under study, to which the State Budgeting Act for 2019 will predictably be added. All of these texts contain important regulatory modifications in determining the contribution to be paid by companies.

That alone was little, as a result of the Supreme Court's known action, whereby in the last Cabinet Meeting, the Government has approved a Royal Decree-law under which the Tax on Documented Legal Instruments must be paid by the financial institution providing the credit with the aggravating circumstance that such financial institution cannot consider such tax as a cost and therefore deduct it from the Corporation Tax. In other words, the actual decree-law states that when the Tax on Documented Legal Instruments has to be paid by a bank, its cost for this Tax will increase by 30%.

We are unable to understand the reason for such modification, but it is clear that as a result, the bank, for the mere fact of providing credit, must pay 30% more in tax, which obviously discourages any credit flow. Curiously, we thought that until just a short time ago, the problem was precisely the opposite, and what was sought was for banks to provide loans and not the opposite.

We are not now going to point to the fact that the apparent punishment of banks is more 'fictitious' or projected than real, if we consider that banks have millions of negative taxable bases to offset this.

We will also not point to the fact that the aforementioned blow to banks could be a reward in disguise, as banks will be able to activate tax credits (the famous Deferred Tax Assets) on their balance sheet.

Nor will we concern ourselves with how a standard that has been in effect since before 1993, the validity of which the Supreme Court has been discussing for weeks, has become an extreme and urgent need (assumptions that are required for using the instrument of the Royal Decree-law).

But what we cannot ignore is the obvious lack of basis for introducing such a flagrant discrimination in the Corporations Tax, regardless of how cool it is nowadays to position oneself against banks.

The Constitution, in addition to the solidarity and progressive nature we all know, enacted the principle of equality, a principle that clearly is compromised by establishing a modification thereto, so it is possible that the Constitutional Court may also need to rule on the Tax on Documented Legal Instruments, and in fact we envisage a future statement of unconstitutionality of the standard that is approved today.

Patching up the tax regulation or even using the business tax in such a short-term manner not only does correct the fundamental issues (the Tax on Documented Legal Instruments will continue to be supported by customers, whether we like it or not), it also creates other major problems, such as the fleeing of companies or the lack of attractiveness of Spain for foreign investors. Our main goal should be to attract investment through tax reductions that “attract” foreign capital to Spain, which is what the other countries are already doing.

If credit and economic activity are reduced then we cannot complain…