Spain Taken To Task Over Tax Treatment Of Non-Residents

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

18 January 2006

The European Commission announced this week that it has decided to refer Spain to the European Court of Justice over its taxation of non-residents' capital gains realised on the sale of Spanish immovable property.

Under Spanish law, capital gains of resident individuals derived from immovable property are taxed at a rate of 15%, whereas similar capital gains of non-resident individuals are taxed at a rate of 35%.

The Commission also revealed on Monday that it has decided to refer Spain to the Court of Justice over its taxation of non-residents' employment-related income.

Under current Spanish rules, employment related income is generally subject to a final withholding tax at a rate of 25% when it is paid to non-resident individuals whereas for resident individuals it is taxed according to a progressive scale.

The Commission considers that Spanish tax legislation in these two areas fails to conform to the EC Treaty requirements, in particular to the non-discrimination principle, and is referring the matters to the ECJ because Spain has not changed its legislation, despite the Commission's formal request of July 2005.

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