Gerard Garcia-Gassull's Blog

Employees of companies, especially when exercising management duties, are liable to make decisions based on an unfair compensation in their favour. In such cases, the decision may be acting, permitting or approving something prohibited by law or beyond the company's activity.

Corruption between individuals takes place when, acting unfairly, a gift or an economic benefit is offered or delivered in order to obtain a competitive advantage over other companies. 

Corruption committed within the private sphere is ruled by a Section of the Criminal Code (hereinafter, CP) called “Corruption in Business”, such as corruption of foreign public agents, and specifically by article 286bis of the CP. This article was modified through Organic Law 1/2015, of March 30, which amended Organic Law 10/1995, dated November 23, of the Criminal Code. Such reform does not affect the essence of the offense or the protected legal right, which continues being a fair and honest competition. It is rather considered to be a technical amendment.

This is a crime for which a legal person can be convicted: if the requirements of article 31 bis CP have not been fulfilled with regard to the implementation of a criminal prevention program, the Company will be criminal accountable. Such prevention programs are established to avoid or, at least, to reduce the possibility of committing crimes within a Company.

The purpose of this regulation is to transpose Council Framework Decision 2003/568 / JHA of July 22, 2003 to fight against corruption in the private sphere. It is about protecting competition, so that companies in the market act in a fair and honest way, thus protecting their economic interests.

Firstly, it rules passive-type corruption, that is to say, it establishes the cases and corresponding penalty for the "corrupt" that receives, requests or accepts the bribery, since it is understood as a benefit or advantage of any nature that is not justified in the context of the business. Directors, administrators, employees and even collaborators of a trade company or a company may be qualified as active subjects in the commission of the crime, either directly or indirectly and for their own benefit or for a third party’s. 

Favouring one party before others in a purchase or sale of goods, when hiring services or in a business relationship by a corrupt individual is qualified as a consideration. And secondly, the law prescribes a term of imprisonment of 6 months to 4 years together with the special disqualification for the exercise of any industrial or trade activity during 1 to 6 years as well as a fine of double to triple the value of the benefit or advantage of the specific case.

Active-type Corruption is qualified as a criminal offense and a penalty is established for the corruptor, for those who directly or indirectly promise, offer or grant to managers, administrators, employees or collaborators of a trade company or a company benefit or advantage without justification. This action aims to obtain preferential treatment on the part of the indicated subjects. 

The same penalties as in the previous type are imposed to the person who tries to corrupt. Judges and courts shall keep in mind the amount of the benefit or the value of the advantage, as well as its importance to sentence a lower penalty and reduce the fine.

Specific type for cases of corruption in sport:

Likewise, to combat crime in the field of sport a specific type is added. The provisions mentioned in the previous paragraphs regarding fraudulent conduct and penalties are applicable. The same active subjects are established, that is to say, managers, administrators, employees or collaborators of a sport entity could also be considered as active subject but the law includes in that definition any athlete or referee who deliberately try to modify the result of an event, a match or a professional competition of special economic or sport relevance.

It should be understood as a sport competition of special economic relevance that in which the majority of participants receive remuneration, compensation or economic income to participate; and spot competitions of special sport relevance will be those qualified by the corresponding federation as the top official competitions in that discipline. Therefore, competitions at a lower stage fall outside this definition.

Therefore, it is intended to protect competition, so that there is equality and, as a consequence, economic interests such as premiums of participants, advertising and even the levels of audience in the respective media are also protected. 

Finally, it provides that Article 297 CP is applicable. This article determines the definition of company for those cases, including in that definition cooperatives, savings banks, mutual funds, financial or credit institutions, foundations, commercial companies or any other entity of similar nature that permanently participates in the market for the achievement of its goals. It requires the company to bear legal personality and to act in the market through the development of a business activity. 

As already mentioned, responsible legal entities will be convicted of an offense of corruption in the event that they do not have effective Compliance programs. 

As established in article 288 CP, the corresponding penalties for the commission of this crime are the following: 

a) Fine of 2 to 5 years, or a fine of three to five times the benefit obtained or that could have been obtained if the amount resulting is higher, when if the offense would be committed by a natural person the penalty would be imprisonment for more than two years.

b) Fine of 6 months to 2 years, or a fine for the same or twice the benefit obtained or that could have been obtained if the resulting quantity were higher, in the rest of the cases.

Treatment of interests in the Venezuelan Tax Convention with Spain: 0% is the cost of interest withholding tax on loan transactions

The Agreement between Venezuela and Spain to avoid double taxation was entered into in June 15, 2004 and in its Protocol includes a most favoured nation clause.

Thus, Article 11 of the Agreement determines a 10% withholding on interest accrued on loans granted by any entity other than financial institutions, in which case the withholding rate is 4.95%.

However, Section VII of the Protocol attached to the Convention includes the key to this 0%:
"After the signature of this Convention, should a Contracting State conclude a Double Taxation Convention with a Member State of the European Union where the taxation is lower than that determined in Article 11, the provisions of the Convention entered into after this one shall also be applicable to this Convention from the date they enter into force."

After entering into the Agreement with Venezuela, Spain has concluded not only one but several Conventions with European Union State Members, which include a lesser withholding tax than the one stated in the Convention with Venezuela.

For example, the Agreement with Malta of 7 September 2006 and with Cyprus of 26 May 2014 establish, in both cases, a zero-rate withholding tax.

Specifically, Article 11 of each Convention provides as follows:

- Malta: "Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed only in that other State."

- Cyprus: "1. Interest arising in a Contracting State, the beneficial owner of which is a resident of the other Contracting State, may be taxed only in that other State."

For that reason, withholding tax on interests in loan operations between Venezuela and Spain was de facto reduced to 0% by the ratification of the Agreement with Malta in September 7, 2006.

An investment fund is a vehicle to channel different people’s savings for the purchase of shares and debt issued in an official and regulated market.

This vehicle is virtually identical to a SICAV. The distinctive feature is that the share of diversity of people involved in is greater. It is defined as a collective vehicle because of that participation of people.

Investment funds are required to maintain a portion of the capital raised in cash in order to facilitate any partial or full withdrawals of their investors.

This investment vehicle is governed by the Regulations proposed by the promoting entity. This regulation refers to the mode of investment and divestment, the manager’s remuneration, the type of assets it invests in and the type of financial markets, among others.

Investing mutual fund allows you to enjoy several advantages:

1. Managing the savings of an individual through investment funds allows that person to operate as if he/she had his own SICAV. The reason is:

i)   Both types of entities have identical taxation (1% on profits);

ii) Qualified investment funds are those classified as UCIT 4. Unit holders in a qualified investment fund are not taxed when they disinvest provided the amount received is used to invest in another qualified investment fund. So, the saver can modify the investment profile as if he/she had a SICAV;

2. Regarding the professionalism of management, it should be noted that most savers do not have the means or time to make adequate decisions in the face of market developments. The investment through funds offers a professional management with the capacity and resources to face the investment decisions.

There is a mistaken belief that investing in shares is clearer than investing through investment funds. However, this perception is far from reality. Choosing between one or more shares is not even close to the saver’s ideal investment. The reason is the lack of risk perception: an individual does not have the quality and amount of information available to professional managers.

In addition, management allows the taking of protective decisions with derivatives or hedges. These mechanisms are beyond the reach of individuals both because of its specialization and the opportunity cost.

The remuneration of the fund manager is determined in the regulations of each fund and it is under the supervision and approval of the regulatory body, in this case, the CNMV. Sometimes managers ask the regulator for an improvement in their remuneration conditions, especially when the fund has a high success rate.

3. Thirdly, the key of investment funds is the possibility of diversifying investment. An investment fund can invest capital in different assets, regardless the country or sector in which it is invested.

In this way, an investment is more secure since the diversification has as a direct consequence: the risk minimization.

4.  Lastly, the most attractive aspect of funds is their tax advantages.

Investment funds are exempt from taxation until their repayment. In addition, funds are transferable in an unlimited way, and the investment can be transferred from one fund to another without taxation provided that the capital is not available to the investor. Taxes will only be paid when the investment is fully or partially refunded, giving rise to the corresponding effects on Personal Income Tax.

Each investor has his own specific objectives. Given the characteristics of the investment fund and the diversification of investments, it is very feasible to achieve the objectives set in each case.

The Convention to Avoid Double Taxation between Barbados and Spain contains a rule for the taxation of interests in the creditor’s place of residence.

Thus, Article 11 provides:

"1. Interest arising in a Contracting State whose beneficial owner is resident in the other Contracting State may be taxed only in that other State.”

However, the same Convention establishes a restriction on the application of this standard in the Convention’s Memorandum. The purpose of this restriction is to prevent, through the triangulation of Conventions, that one of the two countries ends up granting an exemption that would not have been applicable if the transaction would had been carried out directly.

Thus, paragraph 1.B. (a) of the Memorandum restricts the right to the application of the Convention to Articles 10 (Dividends), 11 (Interests), 12 (Canons) and 13 (Capital Gains) to the event that: “the income obtained by a Contracting entity which is paying dividends, interests, royalties or capital gain to a resident in another Contracting State arises in a territory without an agreement to avoid double taxation with that other Contracting State”.

Let's take an example:

Imagine a Barbados company granting a loan to a Spanish company and the Spanish company uses those resources to grant a loan to a company in Costa Rica.

According to the website of the Ministry of Finance of Costa Rica there is no CDI between Costa Rica and Barbados.

Consequently, and since Costa Rica lacks a Tax Convention with Barbados, the treatment of Article 11 of the Barbados-Spain Agreement would not apply. In the event of non-application of the Agreement, Spanish legislation on the taxation of non-residents operating in Spain will apply.

In this case, article 25 (f), 2º of Non-Resident Income Tax Law applies since it establishes a withholding tax of 19% for "interest and other income obtained from the transfer of own capital to third parties”.

In this made-up story that we are using as an example, it should also be considered that the agreement between Costa Rica and Spain determines a 10% withholding on interest on loans for a period not exceeding 5 years.