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.