EC Pursues Spain Over CGT

by Ulrika Lomas, for LawAndTax-News.com, Brussels

19 October 2006

The European Commission announced on Tuesday that it has opened a second infringement procedure against Spain for not having complied with a judgement of the European Court of Justice (ECJ) on capital gains tax.

Under Spanish legislation applicable to shares bought before 31 December 1994, capital gains on shares of companies quoted in the Spanish financial markets benefit from a 25% reduction in the tax rate, whereas the equivalent reduction for shares of companies quoted in financial markets other than Spanish is only 14.28%.

The Court decided that Spain had violated the principles of free provision of services and of free movement of capital by maintaining a less favourable tax regime on capital gains on shares of companies not established in Spain.

If a Member State fails to comply with a judgment of the ECJ, the European Commission, in application of Article 228 EC, starts a second infringement procedure. If the case ends up again before the Court, the latter may impose a lump sum or penalty payment on the State concerned.

According to the EC:

"Spain has not transmitted any information to the Commission on the amendments of its legislation. In its submission to the Court, Spain had argued that the existing legislation (which entered into force in 2003) as interpreted by the Tax Administration already extended the domestic regime applicable to Spanish shares without any difference to those traded on a foreign stock exchange."

"In the Commission's opinion, the most recent modifications of the Spanish law did not affect the specific provisions which were at stake in the Court procedure and, in any case, an interpretation of those provisions at the administrative level was not enough to guarantee the security of law and to remedy the committed violation."

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