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.

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).

SIF stands for “Specialized Investment Funds”. In the specific case of Luxembourg, it may be established as an investment fund, as a variable capital investment company (a SICAV by its Spanish abbreviation) or as a fixed capital investment company, a SICAF.

With regard to the investments, they are limited to qualified investors that is, to any Institutional Investor, professional or any other investor who can proof and confirm in writing his position as a well-informed investor and invests at least €125,000 or provides with a certificate issued by a credit institution proving his capacity as an expert investor and his knowledge and expertise to carry out proper investments in a SIF.

This certificate may be issued by (i) a credit institution within the definition provided by Directive 2006/48/EC, (ii) an investment firm based on Directive 2004/39/EC or (iii) a management company within the meaning of Directive 2001/107 /EC. Nevertheless, it must be highlighted that individuals such as investments advisors or managers do not need to prove their capacity as ‘well-informed’ investors. 

Minimum capitalization, including capital and share premium, must be, at least, €1,250,000. This amount can be achieved within the twelve-month period after the authorization. Therefore, it is less than in the case of Spain, where capital should amount €2,400,000. In addition, unlike the Spanish SICAV, which requires a minimum of 100 investors, these funds established in Luxembourg can be formed by a single investor.

The "Commission de Surveillance du Secteur Financier” is a public institution that supervises, monitors and controls whether the requirements of Luxembourg law relating to capital are met: qualification of investors and documentation for the establishment, among other requirements. It is also the institution responsible for authorizing the establishment of the SIF before it starts operating. 

The SIF- SICAV may be structured by separate compartments, also called sub-funds. Each compartment is formed by an asset and a liability. Since they are considered separate entities, investment policies may also be different and each investor may decide to participate in one or more compartments, depending on his interests. Following that logic of this separation and unless otherwise established in the incorporation by-laws, investors have rights and obligations with regard to the specific fund they have invested in. Therefore, they may be liable for expenses and/or may receive benefits from the specific compartment in which they take part.

Consequently, each compartment will be liquidated separately. In order to fully liquidate the company, each and every sub-fund must be liquidated. The competent Courts, based on the SIF’s registered office, may dictate the dissolution of those compartments without permission to be constituted. 

Cross-investment is allowed between compartments. That is to say, a compartment may acquire units in another compartment of the same SIF. However, the purchaser of those shares may not be allowed to invest in the investor compartment subsequently.

Another basic requirement for the establishment of a SIF-SICAV is the appointment of a depositary bank established in Luxembourg in order not only to safeguard and monitor the assets but also to supervise the activity of the management company.

The board of directors shall be established in Luxembourg and may delegate certain faculties to third parties, under supervision. Furthermore, it should be pointed out that accounting, NAV calculation, the share register, subscriptions and redemptions, notifications to investors and the elaboration of financial statements must take place in Luxembourg.

Administrators shall appoint a management company that performs the tasks of representation, monitoring, counseling, accounting and processing of subscriptions and redemptions of shares, plus annual reporting. Furthermore, a custodian entity that may supervise the management company mainly must also be designated.

Regarding the tax regime applicable to Luxembourg’s SIF-SICAV, its taxation is also lower. These structures are subject to an annual subscription tax of 0.01% of their net asset value. 

To be clear, the attractiveness of these companies lies in their flexibility of investment, in the reduction of the establishment requirements (such as the minimum initial capital to be provided and the possibility of becoming a single investor) and, of course, in the applicable low percentage taxation.

The Foreign Account Tax Compliance Act, called FATCA, is a United States federal law. The act, in effect since 2010, regulates the automatic exchange of information to avoid tax evasion from US citizens when operating foreign financial accounts. For that purpose, it is necessary to identify those individuals who must pay taxes and own assets abroad. 

Therefore, the financial institutions must share information of both American citizens and companies who own accounts and deposits abroad. 

The current regulatory framework applicable to Spanish financial institutions is the agreement between the US and Spain, published in BOE (Official Government newsletter) on July 1, 2014 to improve the compliance of the international tax legislation as well as the Order HAP/1136/2014, of 30 June on reporting obligations and due diligence matters. 

To achieve the main goal of FATCA, all foreign financial institutions (FFI) must provide information about their customers’ assets and accounts, mainly when the holder is a US citizen or when the last beneficiary of the Company’s profits are from the US. The FFI must share this information with the Internal Revenue Service (IRS).

According to article 4 of the above-mentioned order, any custodial institution, depositary institution, financial investment entity or insurance company qualified as Spanish FFI is obliged to inform the corresponding authorities.

As per the obligations derived from the agreement, when informing the authorities, the Spanish FFI must:

a) Identify the US accounts subject to disclosure in accordance with the due diligence rules: (i) Deposit Accounts, (ii) Custodial Accounts, (iii) Insurance cash value contracts, (iv) Annuity contracts and (v) Investments in equity or debt in certain entities.

b) Annually report to the State Tax Administration Authorities, all the information regarding the name, address and the US Tax Identificatio

n Number of the account holder as well as the account number, the identification of the financial institution and the balance. 

c) Notify the State Tax Administration Authorities the name of any non-participating financial institution, which received payments in 2015 and 2016 and the total amount.

d) Register before the IRS and obtain a GIIN (Global Intermediary Identification Number).

Those FFI's not performing the exchange of information effectively will be punished with a 30% withholding, obviously non-refundable, for those income with a US origin.

FATCA has a clear intention to economic integration. It promotes the effective exchange of information, directly contributes to a global tax transparency model and fights tax fraud and offenses.