Spanish tax authorities are considering changes to the no-tax policy for financial expenses. The tax exemptions from this type of expense exceed the 40 billion euro mark according to some calculations.
Although the impact of increasing revenues would not be more than 30% of this amount, experts are indicating that ?many millions? in tax revenues could be generated. At this time, there are many loopholes made possible by outsourcing, which could exacerbate the markets' view of Spain private debt vs. GDP profile.
That is what went into effect after a report from tax inspectors from the Ministry of Finance was filed. The current way that these earnings are processed leads to a high concentration of debt in Spain, where it is more profitable to go into debt and take a tax deduction for corresponding financing expenses, which makes investment and job creation easier outside of Spain than inside. Example: when a multinational company acquires a branch in Bulgaria or some other country with low taxes.
Our weakest link
So the rest of taxpayers in Spain are subsidizing foreign investment and jobs. Not for naught, financing costs deductions in Spain is well emphasized in various reports and reviews as the main weakness of our tax law.
Especially when all European countries, according to tax experts consulted by elEconomista, are putting limitations on deductions for financing costs. In Spain there is only one. It is known as the subcapitalization law, under which those expenses are considered dividends provided that the debt triples proprietary funds. This cap is avoidable, because it is too much to raise proprietary funds in order to avoid the cap.
