Spain continues to thumb its nose at the European Commission on an issue that looks like it will end up in the European Court of Justice…..one day.
Spanish residents get a tax break of 60% on long-term rental income that is denied to other EU residents. Last year an article here reported moves by the EC to end this fiscal discrimination against EU-resident landlords, and it looked like they would soon be reaping the benefits.
“On 7 March 2019, the European Commission initiated legal actions, an infringement procedure, against Spain due to the discrimination of its Non Resident Tax Law against EU citizens’ rental income,” explained Claudio Rodríguez of Del Canto Chambers in London and Madrid at the time. “The legislation is contrary to EU Law and Spain has a period of 2 months to give a detailed answer to justify its “unjustifiable” position. If it does not convince the European Commission, Spain will be forced to modify the rules. Otherwise, the case will be heard at the Court of Justice of the EU.”
What has happened since then? From what I can tell, nothing. The latest situation is that landlords living in other EU countries still have to pay income tax on 100% of gross rental income, not just the 40% that residents in Spain have to pay. Spain has made no move towards ending the fiscal discrimination, but it looks like the EC has done nothing either to force Spain into line. A recent decision by Spain’s Economic-Administrative Central Tribunal from November last year cynically noted that. whilst the EC hasn’t taken any further steps, Spain can continue with this blatant fiscal discrimination. The decision did not mention that this discrimination discourages the very outcome the tax break is trying to achieve.
If EU law is to be enforced, the EC will have to take Spain to the ECJ one day. When that day comes, landlords residing in other EU countries will enjoy the same rental tax break as Spanish residents, and potentially even rebates for past years. Until then, Spain will continue to enforce a discriminatory law that works against the objectives of the tax break, which is to get more property onto the rental market, regardless of where landlords live.