Spanish tax authorities recently issued a ruling1 clarifying the eligibility requirements for the tax deferral regime2 for capital gains arising on the transfer of shares or units of foreign collective investment institutions (CIIs) that are registered in Spain for the purposes of distribution but deposit the shares or units abroad.The tax ruling addresses in particular harmonized CIIs (undertakings for collective investment in transferable securities, or UCITS) that deposit shares or units abroad, and their ability to invest in other UCITS.

This affects many taxpayers with financial assets abroad who entered into voluntary disclosure programs, and taxpayers who, fearing the Spanish economic recession, have their financial investments abroad.

Background

Ruling V1186-14 refers to specific transfers of foreign UCITS by a Swiss banking group that has a Spanish subsidiary registered with the Spanish National Securities Market Commission (CNMV) for the purpose of distributing shares or units of UCITS in Spain while keeping the deposit of the shares or units in the parent credit institution in Switzerland.

According to the tax ruling, the question is whether the Spanish tax deferral regime would apply, assuming that the transfer order would be made under a "tripartite agreement" entered into by the taxpayer (investor), the Swiss bank (depositary of the UCITS), and the Spanish subsidiary of the Swiss bank (distributor), as follows: The taxpayer informs the Swiss bank (depositary of the UCITS) of its intention to transfer the shares or units. On receiving the transfer order, the Swiss bank informs the Spanish subsidiary (distributor), so it can enter the transfer order for direct market access. The Spanish distributor would have an individual breakdown of each investor's position to meet its withholding obligations.