Potential Changes to Spain’s Tax Laws May Affect More Than Just High-Net-Worth Individuals

Much of the debate regarding tax laws worldwide centers on high-net-worth individuals and major international corporations. Despite this, the potential changes planned for Spain’s tax laws have the potential to affect the average Spaniard, not just those who own large companies or have a high net worth.

The Proposed Changes

The proposed change in question is the financial transaction tax (FTT). It originally passed the Spanish Lower House on June 11. At this time, the opposing parties attempted to use procedural motions to stop the bill from consideration, but those were rejected. This 2020 FTT bill is very similar to the one from January 2019. That previous bill did not reach discussion in parliament due to political instability.

The FTT bill in question proposes a tax of 0.2 percent when buying shares of any Spanish company that has a market capitalization greater than 1 billion Euros. Of the 35 companies on IBEX, the Spanish stock exchange, this would apply to 34 of them.

The tax in question would apply when acquiring shares of the Spanish companies for trading on any regulated market in a European Union member state or the Spanish market, or an equivalent market in a third-world country.

The FTT would also apply to acquiring securities corresponding to the depository receipts that indicate qualifying shares. It would also apply to acquiring securities from settlement or execution of bonds or notes that are exchangeable or convertible as well as financial instruments, agreements, and financial derivatives.

The 0.2 percent tax would apply to the value of the asset when traded. As an example, an FTT of 0.2 percent would lead to taxes of $2 on an asset valued at $1,000.

Arguments in Favor

The Spanish government estimates that the new tax could increase its income by 850 million Euros each year. The estimate from the Independent Authority for Fiscal Responsibility is less than half, at just 420 million Euros. The latter estimate is likely more accurate, given that the scope of the proposed Spanish FTT would be similar to the existing French one. For comparison, the French FTT had a government projection of 1.1 billion Euros income annually from August to December 2012 but ended up yielding just 198 million Euros.

Arguments Against

Those opposed to the FTT bill argue that it would have strong negative effects on the capital market, which could cost more than it makes in revenue. This largely comes from the potential distortions that FTTs can cause in capital markets. Some include lower asset prices, reduced trading volumes, and increased costs of transactions.

These distortions can lead to people preferring to conduct business outside the regulated markets. Even more importantly, opponents argue that small investors, as well as families, would bear the brunt of this cost since they would be unable to find other trading methods, which tend to be readily available for high-net-worth individuals.

Additionally, the FTT has the potential to reduce liquidity in the stock market, which would increase the capital cost. Workers would have reduced returns to labor while owners’ returns would also decrease.

An EU-Wide FTT Is Still Possible

There is also still the possibility of an EU-wide FTT. If this were to occur, then Spain would have no reason to implement its own FTT. The plan was first introduced in 2013, but by mid-2019, it became clear that EU member states could not reach an agreement. This was largely due to reduced revenue for sharing among the member states and Spain and Italy being against the related revenue sharing scheme.

Time will tell whether Spain approves its FTT bill, but everyone, from high-net-worth individuals to average families should be invested in the future of this bill.



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