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.

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.

Article 348 bis of Capital Companies Act (hereinafter CCA) regarding the right of separation in the event of lack of dividend distribution was recovered last January.

This article was approved on 2 October 2011 and suspended from 24 June 2012 until December 31, 2016.

How does the right of separation work in this case?

The minority partner of any unlisted company may claim this article to exercise the right of separation, extending its application to all capital companies.

The requirements are the following: 

(I) the member who wants the separation must have voted in favour of profit sharing,

(ii) the General Meeting has not agreed a minimum for the distribution of dividends of one-third of the profits resulting from the exercise of the company’s object during the previous year and 

(iii) the company must have been registered at the Companies House for at least more than 5 years (starting on the first year regardless it was incomplete).

In relation to benefits, they should not be no recurring and must be legally distributed, as per the company’s by-laws and the Law (article 273 LSC).

When the Company refuses to distribute the dividends arises the right of the minority partner to claim this provision and to demand the consideration of the right of separation. The Company is, therefore, obliged to acquire such shares.

This article may become a serious headache for many companies and family businesses, specifically for those with liquidity problems. They may face liquidity problems when paying both dividends and the liquidation fee in the event of the separation of the partner of the Company.

It is appropriate for companies to consider the possible effect of this regulation on their treasury. It is therefore necessary to study the consequences of the exercise of this right by the partners in each company, examining the value of the shares, as the case may be, as well as the clauses set forth in the bylaws for this assumption.

As a measure to alleviate this unexpected Company's insolvency, it is feasible to reduce distributable social benefits legally, thereby reducing the Company's liquidity impact.

However, the reduction of results should be supported by accounting regulations and ultimately by the criterion of prudence. In the event of taking such measure, the extra-taxable tax adjustments should be taken into consideration so that they do not exceed those allowed by the Corporate Tax Law.

The goal of this article is the defence of the right of the minority partner against the abuses of main shareholders, without considering a specific financial and equity status of the Company at that time.

I wonder what it is more unfair, either an agreement of the majority of the partners refusing the distribution of dividends or the right of the minority partner to demand the distribution of a third of the profits which may strike hard the company’s liquidity.

Money laundering is an operation that consists on giving a legal appearance to funds obtained from illicit activities and, consequently, these funds pass through the financial system without problems.

For money laundering to exist, another serious crime – which provides the benefits- must be previously committed. Introducing those benefits obtained from an illegal activity in the financial markets or other economic sectors is a crime. It is a specific crime which does not require a prior conviction for the criminal activity that generated the laundered funds.

The use of ‘laundering’ has its origin in the US gangster Al Capone, who justified his high income to his laundry businesses when, in fact, profits were obtained from criminal activities. The comparison between cleaning a dirty garment and cleaning dirty money fitted perfectly with the expression of money laundering.

The following activities are considered money laundering:  

I. The conversion or transfer of property, knowing that such property is the proceeds of a crime, or of the participation in such activity, for the purpose of concealing or disguising the illicit origin of the property or of helping any person involved in the commission of that activity to evade the legal consequences of his or her action.

II. The concealment or disguise of the true nature, source, location, disposition, movement or ownership of goods or rights on property, knowing that such property is the proceeds of crime.

III. The acquisition, possession or use of a property, knowing that, at the time of receipt, such property is the proceeds of crime.

IV. Participation in, association with or conspiracy to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the offences mentioned in the previous sections.

Companies must be very cautious in the exercise of their activities to avoid being used as means to the attainment of these crimes.

The perpetrator of money laundering can be convicted when it is proved that this person was aware of the collaboration in an unusual operation and that the source of money and property was not legal provided that the perpetrator was in position to know its origin and had the duty to know it. In addition, profits obtained by the felon will be confiscated.

Determining a direct evidence is virtually impossible since the money has been initially camouflaged. Therefore, circumstantial evidences that allow a certainty of trial about its illegal origin are admitted: (i) an increase in equity without legal justification and in an unusual form, (ii) non-existence of lawful business to justify the increase in equity or amounts related to a business, (iii) commercial transactions for high amounts that do not correspond to the usual cost of such operations, or (iv) the existence of a link with organizations that deal with narcotic drugs or are directly related to these types of illegal activities.

It should be noted that in Spain, SEPBLAC (Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offences), fulfils the function of developing prevention policies, establishing procedures for communications by indication, for the request information by national authorities, for international cooperation and for the exchange of information. 

Money laundering is a dangerous activity for both countries and their financial institutions, since this type of criminal activity can lead to an increase in crime and an unbalanced economy, affecting the good reputation of financial institutions.

For all these reasons, it is so important to fight against money laundering, supervising and reinforcing current regulations. It is necessary to reduce the threats and support an strict international regulation and the prevention through the financial system.

What are the requirements for the application of the famous 95% tax rebate?

The succession of a family business can be a complex process which is, undoubtedly, full of ins and outs; I will try to solve one of them in this article.

Being a business family means much more than owning a partnership. It is essential for these families to plan their succession, avoiding mistakes due to lack of awareness or confusion.

| As highlighted in the report "Family Business in Spain (2015)" by the Family Business Institute, 88.8% of Spanish companies are family business and particularly in Catalonia the percentage reaches 85.6% % |

It is an issue that affects all business families. After twenty years of experience, I can say that most of the conflicts arise due to lack of planning. All business families should implement a strategy for planning a generational change or a succession.

| It is not necessary to be a partner of the family firm in order to apply the 95% tax rebate |

The classic case is the transfer of the family firm to the widow and the respective children. 

Due to the existence of a family bond, tax benefits stipulated by law will applied. But the most common confusion is to think that it is necessary to be both, a family member and a partner of the company to apply the bonus. However, this is not the case.

It is only necessary to be a manager and a relative. In this case, a 95% bonus may be applied to the taxable amount of the Inheritance Tax. Thus, the family member who inherits the company does not have to be the owner of equity interests of the family firm.

Financial and tax issues must be dealt together in order to build a consistent fair planning. During that process, I always support the families in all conflicts that usually arise due to miscommunication.

Throughout this article, we will focus on the structure and functioning of Spanish SICAVs, which stands for Variable Capital Investment Company. 

As defined in article 9 of Law 35/2003, of November 4, on Collective Investment Institutions (hereinafter referred to as LIIC), it is a collective investment institution, that is to say, an institution under the form of a limited company whose social object is raising funds and managing and investing those funds in securities or other financial instruments, provided that the investor’s profits are based on collective results.

From a legal perspective, it is structured as a mercantile corporation and, consequently, it is incorporated before a notary and registered at the Companies’ House. In addition, it must be registered in the Registry of the Spanish Securities Market Commission (hereinafter CNMV) and accepted, if it were so decided, in the Alternative Stock Market.

According to Section four of Article 9 LIIC, an investment company must be made up of at least 100 investors or shareholders. This minimum is settled as a guarantee of the collectivity that might characterize this type of institutions.

The Spanish legislation on SICAVs allows the structuring of these institutions through compartments or sub-funds. Each one receives a specific denomination and issues its own shares. Thus, the part of the fund allocated to each sub-fund will be liable exclusively for the costs and obligations specifically attributed to that sub-fund. Nevertheless, those shares not attributed to a specific sub-fund may also be charged on a pro rata basis. The funds shall be financed by the contributions of the investors, who will be liable for any debt up to the limit of their contribution. Although the LIIC allows such structuring by compartments, it is worth mentioning that currently there are great difficulties in obtaining the approval of sub-funds by the CNMV. Consequently, in those cases, investment funds are chosen.

Regarding the initial share capital, Article 80.2 of Royal Decree 1082/2012 of 13 July, that approves the Regulation implementing Law 35/2003 of 4 November on collective investment, establishes a minimum of €2,400,000 that must be maintained as long as the SICAV remains enrolled in the registry. Likewise, it establishes a maximum statutory capital of up to ten times the initial capital. 

In case the institution has been structured into compartments, the minimum capital for each of them must be €480,000, always respecting the minimum of €2,400,000 for the total share capital. The value of the shares of the SICAV at the time of its incorporation should prevail; For that reason, it is incorporated with a minimum amount of €2,400,000 and, subsequently, a capital increase is completed. The number of shares is fixed and, in case their value as a whole is lower than the minimum fixed, a term of one year is established to return the value of the SICAV to its initial €2,400,000.

Pursuant to the provisions of Article 10.1 LIIC, the CNMV shall authorize the proposed incorporation of the companies, after the submission of the corresponding documentation to the CNMV. The request may be refused if any legal or statutory requirement is not met. 

In the case of SICAVs, the incorporation may be denied when:

(i) There is a lack of transparency in the structure of the group, 

(ii) A management entity is not designated, when maintaining close links with other entities, preventing the proper and effective exercise of supervisory functions by the CNMV, 

(iii) It is concluded that there may be serious difficulties to execute or to obtain the necessary information for the inspection 

(iv) Those supervision functions are obstructed by:

a. The laws, regulations or administrative provisions of a non-member state of the European Union that govern natural or legal persons with close links with the investment company, or 

b. The difficulties involved in the application of the aforementioned regulations.

In addition, the CNMV will record the SICAVs, classifying them as harmonized or non-harmonized type. It should be pointed out that up to 2005, the Tax Authorities were responsible for the tax control and supervision of the SICAVs. Later on, CNMV was appointed as responsible for that supervision, a nomination that disagreed Tax Inspectors assert that the current supervision is lighter. 

In practice, this change contributed to the creation of a greater number of SICAVs and provided greater legal certainty of this institution since the analysis criteria are concentrated in a single Institution, the CNMV.

Against the globalized idea that SICAVs are opaque, it can be clearly stated that in Spain these societies are characterized by their transparency. Through CNMV records, which are public, you can check who holds the positions in each of these societies and who owns significant shares, among other data. (The list of registered entities of collective investment institutions can be checked by clicking here)

SICAVs must be established through an excellent administrative and accounting organization, with managers or directors of good repute in the business or professional field, as well as a majority of directors with sufficient knowledge and experience in accordance to the complexity of these societies. The designation of a management company, other than the custodian, is optional. They perform essential tasks such as asset management, representation and administration of subscriptions and reimbursements.

Article 57 LIIC defines custodians as the entities entrusted with the deposit and custody of securities, cash and assets. Those custodians also monitor the management companies and administrators. Banks, savings banks, credit unions, companies and security agencies may be depositaries. They must have their registered office or, where appropriate, a branch in Spain (Article 58 LIIC).

In reference to taxation, the main reason for using this type of financial companies is that they are taxed in the same way as an investment fund, ie: 1% of nominal rate, as established in article 29.4 a) of Law 27/2014, of November 27, on Corporate Income Tax. Taxation is shifted to shareholders as they will be taxed at the time they sell the shares, provided that the sell price is higher than the purchase cost, just as it would be in case of selling units in investment funds.

If we continue at this rate and with the same political model, the issue is clear ... Who will pay the taxes in this country?

Based on “Cambios en la estructura y localización de la población. Una visión a largo plazo (1842-2011)”, a report on the structure and location changes in the Spanish population between 1842 and 2011, the greatest population growth in Spanish history took place between 2001 and 2011, increasing by approximately 6 million inhabitants.

Demographic data show that we are facing an impending ageing of the population, which is considered as a characteristic of developed societies. Moreover, they conclude that, in year 2060, there will be more people over 80 than young people. One of the serious consequences of an ageing population is the sustainability of public expenditure on pensions, health and education, among other examples.

This ageing of the Spanish population involves a great challenge and requires a reform of the current political and budgetary project. 

Apparently, an increase in the number of people who pay the Spanish Social Security contributions would help to solve this problem. It is true that the percentage of employees who contribute to the Spanish Social Security system has increased. However, it should be noted that salaries are lower and precarious and, consequently, contributions are also lower.

| So, the question is: will taxes be increased in order to keep that system working, as usually? |

Honestly, I wonder if the so-called ‘mileuristas’ (people who earn around €1,000/month) will have the economic capacity to face the payment of taxes and to ensure the sustainability of our pensions and the public spending...

| The non-deductibility of the provision for depreciation of shares is against business angels |

Deductibility of the depreciation of shares in other companies was allowed until 2013. However, the need to increase corporate tax collection, which is decreasing year after year, forced to modify some articles of the Spanish Corporation Tax Law.

One of those articles is that referring to the deductibility of provisions for depreciation of the stake. The justification for the change was that, allowing such deductibility, taxpayers were taking the same loss twice: one in the company that incurred the losses and another in the company which participated in it.

However, this premise is not met: those who incur losses may deduct them but only if the company is able to obtain profits in the future to offset those incurred losses, whereas the investor records the loss but, should the investee recover, the portfolio depreciation should be reversed. Therefore, there is no place for a double tax benefit.

By contrast, we should bear in mind that anyone investing in a business (either a start-up or an existing one) invests resources obtained through the activity (unless there is leverage) on which taxes have already been paid. Thus, it is logical to think that if you invest in another company, and consequently generate economic activity, you should be entitled to take the loss if the investment has a negative result.

Unfortunately, since 2013 you can only take the loss at the time of the sale of the shares or when the subsidiary is dissolved and liquidated (not even the judicial declaration of bankruptcy is valid to allow the deduction of the provision).

To sum up, in an environment where supporting private initiatives is extremely important, this change in the law is jeopardizing them. 

As I mentioned in previous articles, the world is becoming a place with no confidentiality, which is fine because it requires each of us to analyse our actions from other people's perspective, mainly our tax authorities’.

I hope you all had the chance to read the articles on FATCA and CRS (GATCA) so I will not insist again on these international collaborations.

What I am trying to explain is that the whole process is at lightning speed and the timetable I mentioned in those articles may be kept ahead of schedule.

In this sense, let me inform you that the Spanish tax authorities have requested to the Swiss tax authorities (and they have accepted) to compel the Union Bancaire Suisse (UBS) to provide all data on accounts opened by Spanish citizens in that bank between 2012 and 2015.

This request is based on the article on cooperation between tax authorities included in the Convention entered into with Switzerland 10 years ago. The old Tax Convention, did not include an information exchange clause but after an improvement proposal requested by the Swiss authorities about 15 years ago, the Spanish authorities seized the opportunity to include that cooperation.

The origin of this specific collaboration for the UBS is lies in an identical request submitted by the Dutch authorities a few months ago and which was rejected by UBS. The Dutch went to court and got a favourable resolution. 

| After the successful Dutch request, France also got a positive resolution and finally Spain did likewise. |

The issue shall not be limited to these countries and the UBS. In Switzerland there are around one hundred banks, but ten of them would be of most interest for tax authorities.

For other countries it may have it more complicated than for Spain, since some Tax Conventions include a list of conditions and requirements to be met to gain the collaboration (see paragraph 11, Tax Convention Protocol between Mexico and Switzerland).

Numerous relocations of companies and professionals have taken place in Spain recently. 

This phenomenon of companies’ relocation for tax reasons could be considered as the tax emigration of our companies.

One of the main reasons for this relocation lays in the Spanish taxation system for companies, in an environment where Public Authorities indebtedness has risen from 37% of GDP in 2007 to 99% of GDP in 2015.

This means that when a Spanish company moves its centre of activities to a country like Andorra, Ireland, Malta or Cyprus, its taxation falls from 28% (2015) to 12.5% in the cases of Ireland and Cyprus, to 10% in the case of Andorra and to 5% in the case of Malta.

However, a true relocation of activities, which imply both labour and hiring contracting in the country of destination, is requested for a relocation to be effective.

This relocation is clear evidence that the Spanish Public Administration managers need to accept what being part of a competitive world means, that is that not only companies but also countries compete with each other.

A disproportionate current expense in a country means an increase of its tax burden, which finally affects its citizens. And it is a big mistake to believe that neither the citizens nor the companies may take decisions on what it is more convenient for them.