Year in Review – Spanish Law in 2016
Two general elections were held in Spain recently (the first in December 2015) and the various political parties were unable to reach an agreement to form a government until October 2016. This meant a major slowdown in law-making activity. The following are the main legislative changes and case-law precedents from 2016:
Statutory auditors: The new Audit Law came into effect on 17 June, bringing in major changes in rules of procedure, the rules on liability and prohibitions for auditors (“auditors must be and appear to be independent”) and specific requirements regarding statutory audits of public-interest entities (among others, the need to have an Audit Committee formed by a majority of independent directors). Read more…
Market abuse: The European Market Abuse Regulation (MAR) has been of application since 3 July. It sets forth a new EU regime on disclosure of inside information, market manipulation, insider lists and restrictions on dealings by PDMRs and their closely associated persons. Read more…
Good governance at listed companies: The Spanish stock market regulator (the CNMV) has published technical guidelines on best practices for the application of the “comply or explain” principle. This is to address the shortcomings found in explanations offered by listed companies when they fail to follow, in part or entirely, any of the recommendations in the Code of Good Governance. Companies are reminded that they must avoid generic and stereotypical language and focus on specific context (“explanations must be structured and easily comprehensible”).
Securities clearing, settlement and record-keeping: On 27 April, the first phase was launched to reform the system of record-keeping, clearing and settlement of securities in the Spanish market. This involved, among other things, the move from a track record based on references to a registration system based on balances and the introduction of a central counterparty, BME Clearing, in the equities clearing and settlement process. In addition, as of 3 October 2016, settlement for equities takes place on the trade date plus two business days (T+2 instead of T+3).
Capital requirements for credit institutions: Bank of Spain Circular 2/2016 on the supervision and solvency of credit institutions came into effect on 10 February. Among other issues, it details the method for calculating capital buffers. It also introduces rules of internal organisation and transparency requirements with regard to corporate governance and remuneration policy at credit institutions and details certain aspects of the supplementary supervision of financial conglomerates.
Accounting rules for credit institutions: Bank of Spain Circular 4/2016 amends, among others, Circular 4/2004 on public and confidential financial reporting rules and formats. In particular, it reinforces the accounting criteria applicable to: (i) management of credit risk; (ii) accounting classification of transactions based on credit risk; and (iii) individual and collective investments of provisions.
Depositaries of collective investment schemes and entities regulated by Law 22/2014: CNMV Circular 4/2016 regulates, among other aspects, the functions of safekeeping and administration and cash control applicable to the depositary of entities regulated by Law 22/2014 (private-equity firms, other closed-ended collective investment funds and the management companies of closed-ended collective investment funds) and alternative investment funds. It also specifies technical aspects of the general regime applicable to the supervisory and oversight function of the depositary. It came into effect on 13 October.
Mortgage loans to consumers and interest rate floors: The CJEU has given a ruling on the effects of invalidity of certain interest rate floor provisions (clauses which impose a limit on the extent to which consumers can benefit from lower borrowing costs, should the reference index used to set mortgage rates fall) contained in mortgage loans with consumers. In its judgment, the CJEU found that declaration of these kinds of terms as invalid – generally due to lack of transparency – has effects ex tunc, i.e. from when agreements are signed, and that such effect cannot be restricted to 9 May 2013 (date of the Spanish Supreme Court’s first ruling on this matter). This does not apply to situations definitively resolved by judicial rulings with res judicata effect. Furthermore, following a Spanish Supreme Court decision in December 2015, certain first instance and regional appeal courts have started to rule as null and void terms that force the mortgage borrower to pay all costs of arranging the deed creating the mortgage.
Instalment payments: Royal Decree-Law 2/2016 came into effect on 30 September, introducing changes to the legal regime for instalment payments of Spanish corporate tax (Impuesto sobre Sociedades) for taxpayers with a turnover of at least €10 million in the 12 months preceding the date on which the tax period began. From now on, these taxpayers will pay a minimum instalment of 23% of the accounting result for the relevant period (3, 9 and 11 months). No deductions or withholdings can be made against this minimum instalment for each period, save for the instalment already paid for earlier periods.
Public finances: 3 December saw the approval of a series of tax measures aimed at increasing State revenues and reducing the public deficit. Among others, major changes have been made in corporate tax aimed at broadening taxable income by limiting deductions to certain taxpayers, for example: restrictions on setting off profits against tax losses, limits on double taxation deductions and the introduction of a minimum amount for the reversal of impairment losses on securities representing stakes in other entities. Limits are also introduced on relief for losses made on the sale of investments the gain on which, if made, would have given rise to an exemption.
Administrative law: Two very significant pieces of administrative legislation came into force on 2 October: Law 39/2015 governing relations, between administrators and citizens (external sphere) and Law 40/2015 governing relations between the different authorities (internal sphere). Among the main changes brought in by Law 39/2015 we would highlight the widespread introduction of online government services to speed up processes and reduce processing times.
Supreme Court appeals: New rules on Supreme Court appeals through the administrative court system came into force on 22 July. These brought major changes in how to lodge such appeals and in the applicable rules of admissibility (e.g. there is no longer any limit by amount and the concept of “cassational interest” in subject matter is taken into account).
New technologies in the Spanish courts system: Since 1 January 2016 all professionals working in the courts system, including lawyers and court agents (procuradores) have been required to use electronic means in their dealings with the justice system (including filing writs and notices).
Energy efficiency: 13 February saw the entry into force of the energy efficiency Royal Decree partially transposing Directive 2012/27/EU, with regard to energy audits, accreditation schemes for providers of energy services and energy auditors, the promotion of efficiency in heating and cooling, and metering consumption of domestic hot water, heating and cooling.
Employee compensation: In September, the CJEU ruled that it was contrary to European law for temporary workers to be entitled to lower redundancy pay than permanent employees if they are in a comparable situation and there are no objective reasons to justify such a difference (and the mere fact that they are temporary workers is not an objective reason). The court’s finding has led to a debate in Spain about the need to reform the law on temporary contracts.
Year to Come – Spanish Law in 2017
Since the general elections in 2016, the governing party has not had an absolute majority. This means that laws will now require more consensus than before in order to get passed, which could have an impact on the legislative agenda in 2017. The following are the main changes expected in 2017:
Securities market reforms: The preamble to the recast Securities Market Act, approved on 23 October 2015, anticipated that in the coming months Spanish legislation would have to be adapted to the following laws approved at European level: (i) the EU Regulation on Market Abuse, of application since 3 July 2016 and established a new regulatory framework for insider dealing, the unlawful disclosure of inside information and market manipulation (market abuse) and restrictions on dealings by PDMRs; (ii) Directive 2014/57/EU on criminal sanctions for market abuse; and (iii) the new MiFID II regulation, which brought significant changes in the regime for financial instruments and trading platforms. A draft of this reform is yet to be published.
Insolvency: The Government is expected to publish a recast version of the Insolvency Act during 2017. At the date of this publication, the extent of possible amendments is not known (as it is a recasting, they should not be substantial).
New European Insolvency Regulation: The new Regulation, which recasts and repeals Regulation 1346/2000, introduces major changes to close certain gaps in the law and clear up interpretative ambiguities which came to light when the current rules were put into in practice. We highlight the following: (i) its scope of application is extended to so-called hybrid or pre-insolvency procedures; (ii) it clarifies the concept of Centre of Main Interests (COMI) and beefs up judicial oversight of the location of COMIs, to prevent these from being fictitious or artificial; (iii) it strengthens the role of the main proceedings in relation to possible secondary proceedings opened against the same debtor; (iv) it introduces rules on the information and publicity to which insolvency proceedings are subject within the European Union; and (v) it adds a new chapter dedicated to insolvencies of groups of companies. The new text will apply to insolvency proceedings that open after 26 June 2017. Read more…
Data Protection: The General Data Protection Regulation (GDPR) starts to apply in May 2018. Organisations need to make preparations in 2017 to adapt their internal procedures to the new rules. Read more…
Patents: Spain’s new Patents Act comes into force on 1 April 2017. Pre-examination of newness and inventiveness is established as the only system for awarding patents, putting an end to the dual system under previous legislation.
Record-keeping, clearing and settlement system: The second stage of reform of the systems of record-keeping, clearing and settlement of securities in the Spanish market is due to begin on 18 September 2017. It will entail the move from CADE, the settlement platform for public debt and private fixed-income securities, to the new system and connection to T2S (Target2-Securities, the Europe-wide settlement platform).
Credit finance establishments: October 2015 saw the publication of the draft Royal Decree on the legal framework for credit finance establishments (EFCs), which implements the provisions of Law 5/2015 on corporate lending in respect of the pursuit of business, solvency requirements and the system of supervision of EFCs. It has not yet been approved as a draft Royal Decree, so its passage through Parliament is pending.
Home loans: The draft bill on home loan regulations was published on 27 July 2016. It is aimed at providing the Spanish legal system with the system of protection set out in Directive 2014/17/EU of 4 February 2014 on credit agreements for consumers relating to residential immovable property (known as the Credit Mortgage Directive). Aside from protection for consumers, the bill is aimed at encouraging responsible lending by financial institutions. It is yet to go through Parliament.
Tax reforms: It is important to highlight the challenges facing Spain and other European countries in relation with the approval of a Directive relating to the common consolidated corporate tax base, the Directive relating to tax consultations and the growing trend for exchanges of tax information between Member States. In this respect, the objective of the Member States is to follow the roadmap set out by the OECD in its anti-BEPS measures, implementing these in Europe. These include the inclusion of an anti-abuse provision in the Directive relating to interest and royalty payments, plus extension of the current Directive 2016/1164/EU with regard to neutralisation of the pernicious tax effects of hybrid mismatch arrangements (Action 2 in the OECD Action Plan).
Public procurement: Two new bills on public procurement are expected to come before Parliament this year: (i) the Public Procurement Act (Ley de Contratos del Sector Público) which is to implement Directive 2014/23/EU on the award of concession contracts and Directive 2014/24/EU on procurement, and (ii) a bill on procurement by operators in the water, energy, transport and postal services sectors, which will transpose Directive 2014/25/EU on procurement by entities in those sectors.
Anti-trust law: The two-year period for transposing Directive 2014/104/EU on certain rules governing actions for damages under national law for infringements of competition law provisions ended on 27 December 2016. Although there is still no bill in this respect, implementing the directive in Spanish legislation will require amending the current legislation, among other things, in relation to the limitation period for these kinds of actions, which shall be at least five years.
State aids: The CJEU has overturned two judgments by the EU’s General Court (which the cases have been referred back to), which had ruled that the amortisation of financial goodwill on acquisitions of shareholdings in foreign companies, allowed under Spanish law, amounted to State aid. The CJEU held that the General Court made an error at law in its judgment by not applying the principle of “selectivity” of State aids, which required it to check whether the measure entailed a difference in treatment of taxpayers which, from the standpoint of the aims of the relevant tax rules, are in a similar factual or legal position. Read more…
European legislation: There is currently a degree of political uncertainty within the European Union which will probably be accentuated during 2017 (negotiations over the process for the UK’s exit from the EU and elections in Holland, Germany, – foreseeably – Italy and France). This could have an impact on the European legislative agenda.
As of today, European institutions are expected to pass various laws during 2017, notably the Prospectus Regulation (see our key features for equity and debt) and Shareholder Rights Directive. Progress is also expected to be made through delegated acts and the enactment of various rules, such as for example the MiFID II/MiFIR package and Benchmark Regulation. Amendments are due to be made to the Anti-Money Laundering Directive and European Markets Infrastucture Regulation (EMIR), relating to over-the-counter (OTC) derivatives, central counterparties and trade repositories.
Proposals under negotiation include the Proposed Directive on Preventative Restructuring (see here our client alert) and possible changes to merger control thresholds.