The tax reform that experts have been asking for for years, that the main international economic institutions recommend and that the European Commission demands is underway in Spain, although its final form is difficult to see. The path that the coalition Government has chosen to face the changes in taxes to “move towards a more progressive tax system, where whoever has more, must contribute more”, in the words of the Ministry of Finance, is through dozens of amendments “ to the law transposing Pillar 2 of the OECD”—the minimum tax of 15% of profits to multinationals—.
But this path, in addition to being unusual, is putting the two colleagues in the coalition government at odds. PSOE and Sumar have presented separate amendments – the deadline ended this Wednesday. These amendments are different, some antagonistic, and they also keep divided the rest of the block of political parties that supported the investiture and that are necessary to form majorities in the Congress of Deputies.
Knowledgeable sources have explained to elDiario.es that these amendments will be voted on in the Plenary Session of Congress on Thursday, November 14. This deadline implies that the negotiations are going to be intense in the coming days, given that the processing of the Law on the minimum tax of 15% for large companies requires going through the Finance Commission, before reaching the Plenary Session. In fact, other involved sources consulted prefer not to advance a date.
Without a doubt, the starting point is demanding. The PSOE presented its amendments in a 139-page document that has mainly been celebrated, in public, by PNV, Junts and energy companies. This ‘triumvirate’ has aligned their interests for weeks and has organized a pressure campaign against the commitment of the agreement to form a Government between PSOE and Sumar to transform the temporary tax (until this year) to the extraordinary profits of oil, gas and electricity companies in a permanent tax.
The energy tax
For now, the PSOE has complied with PNV and Junts. Among the socialist amendments is not the energy tax. The CEO of Repsol, Josu Jon Imaz, celebrated this Thursday. “Fortunately, the problem is over,” he said. “It is time now to focus on the future and the opportunities ahead.” This is “a positive decision that allows us to move forward with the industrial investments we have planned in Spain,” said the executive of the oil company, the company most affected by this tax, which had threatened to take investments planned in Tarragona to Portugal. . Cepsa, for its part, had made a similar threat, with other investments.
A similar euphoria was shown this Thursday by the Junts spokesperson in Congress, Miriam Nogueras. “We have managed to save investments in Catalonia, save jobs in Catalonia and we have also managed to prevent citizens’ bills from going up,” he said. “We are doing what Mr. Illa will never do, because there are some who prioritize the Spanish State, while what we prioritize is Catalonia,” he concluded.
“The reality is that now there is no majority in Congress to approve the tax on energy companies,” lament sources from the Ministry of Finance, in response to questions from elDiario.es. The first vice president and Minister of Finance had already warned that this commitment was up in the air. However, Sumar has included it among his amendments. Its document is 104 pages, and does not coincide with that of the PSOE.
But the discomfort regarding the future of this tax does not come only from the Executive colleague. Podemos warned the PSOE this Thursday that it will not support in Congress “the corporate tax reform if it involves eliminating the tax on energy companies.” ERC is in this same position. Meanwhile, the sector continues to present record profits (something that temporary taxes have not prevented).
The bank tax
The other major discrepancy within the coalition government is in the banking tax, which also boasts historic gains these days. In this case, the PSOE has included an amendment for the creation of a “tax on the interest margin and commissions of certain financial entities.” As the socialists explain, “it would tax the margin of interest and commissions obtained by credit institutions and the branches in Spain of foreign credit institutions, in the activities they carry out in Spain.”
“The tax rate will be progressive (from 1% to 6% depending on the taxable base). The tax allows the deduction of 25% of the Company tax. In addition, an extraordinary deduction is established in the event that they suffer a sustained decline in profitability. It will take effect for the tax periods that begin on January 1, 2024 and will be paid in 2025. It will be applicable for three consecutive years starting in 2024,” they add from the PSOE.
With this formula, all banks believe that it is “discriminatory.” Among them, Sabadell has been the most optimistic in terms of introducing modifications during the parliamentary process. In the sector there is a feeling of not having known how to play its cards as well as the energy ones. “There has been an attempt to talk and the channels have not been effective,” the CEO of Sabadell, César González-Bueno, justified this Thursday.
On the other hand, the PSOE proposal also clashes with the intentions of Sumar, Podemos or ERC. Aside from the design issues, because the party led by Yolanda Díaz does not agree with what the PNV does celebrate, which has managed to ensure that both this new tax and the modification of Companies enter into the Euskadi agreement. That is, the Autonomous Community will collect it and manage it, so you can subsidize it if you want.
This objective of the PNV has been denounced by EH Bildu. This party says that it “agrees” with the agreement on taxes so that they are managed by Basque institutions. The difference with the right is that “sovereignty is a tool to build fair and egalitarian societies, not to defend certain interests,” according to the words spoken this Thursday by its spokesperson Pello Otxandiano.
The rest of the tax reform
Spain has to complete these tax reforms to receive the 7.5 billion euros of the fifth payment of the European Recovery Plan funds. But the parliamentary weakness of the coalition government and internal disagreements are complicating it. The tax changes are also necessary to comply with the Fiscal and Structural Plan that the Government sent to the European Commission on October 15. Without a more effective and fairer tax system, the risk is that the “adjustment” required by the new EU fiscal rules turns into a new episode of cuts and austerity.
The PSOE amendments include changes to the corporate tax to adapt to court rulings. “A limit is once again established for large companies or business groups to apply deductions to compensate for negative tax bases. The limit is 50% per year for companies with a turnover between 20 million and 60 million euros and 25% for those that exceed 60 million euros. The measure is in line with what was indicated by the Constitutional Court this year, which annulled the rule approved by Minister Cristóbal Montoro for using a Royal Decree-Law to substantially modify the Corporate Tax,” the socialists detail.
“With this amendment, the legislative malpractice of the PP is corrected by using this time a law as a legal instrument to approve the modification in Companies,” they continue.
Another modification of the PSOE is to increase the taxation of capital income over 300,000 euros by one point (from 28% to 29%). “It is a measure that advances the progressivity of the tax and allows progress in the equalization of the taxation of labor and capital income. It is part of the Government’s idea that whoever earns more has to contribute to the maintenance of public services,” they maintain.
Equalization of taxation of diesel to gasoline
The PSOE tax reform also eliminates the bonus that diesel has compared to gasoline. “The measure does not affect professional diesel,” they clarify. “It is an environmental measure to fight climate change. Follow the recommendations made by international organizations such as the European Commission. It makes no environmental or health sense to incentivize or subsidize diesel over gasoline,” the Treasury defends.
In the design, there is a mechanism to reduce taxation if diesel prices rise steadily. Specifically, if for two consecutive months the average price of diesel exceeds 2 euros per liter and the average price of a barrel of Brent increases that second month above the average of the previous month. The measure would take effect on April 1, 2025, if approved.
Tax on electronic cigarettes
Another new figure falls on the consumption of liquids for electronic cigarettes and vaporizers, nicotine pouches and other nicotine products. “The objective is to combat the increase in consumption, especially among the youngest,” emphasizes the PSOE.
Other issues are also addressed, including “being able to tax VAT on rentals of tourist housing in areas where the abundance of these accommodations makes access to housing difficult or in saturated areas. “This is a community directive that the Government is promoting to be approved.”
Inheritances and great fortunes
Agreement on some of these issues is advanced between PSOE and Sumar, and also with respect to others. For example, the creation of a solidarity tax on large inheritances “to avoid downward tax competition in the Inheritance and Donation Tax.” “The State Inheritance Tax would be established for those over 1 million euros and would be the difference between the state tax and that established by the autonomous communities, encouraging the latter not to reduce the tax below the established minimum,” according to Executive sources maintain.
They also seek to improve the Temporary Solidarity Tax of Large Fortunes, which they consider has been effective in “stopping tax competition between autonomous communities in the Wealth Tax, thus improving the progressivity of the tax system and ensuring that large fortunes contribute to finance public services.”
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