Article 108 of the Spanish Securities Market Act is compatible with EU Law

07.2014

On 20 March 2014, the CJEU (Case C-139/12) definitively resolved a long-standing controversy in Spain regarding Article 108 of the Securities Market Act (Ley del Mercado de Valores). A lot has been written about this article and there has been a great deal of debate for many years. This provision establishes that the transfer of shares in a company whose assets consist mainly of real estate is subject to transfer tax (Impuesto sobre Transmisiones Patrimoniales – ITP) at the rate applicable to the location of the property (currently 10% in Catalonia). This means that the purchaser of such a company — whether resident in Spain or not — must pay not only the purchase price of the shares but also the corresponding transfer tax, substantially increasing the overall acquisition cost.

In the proceedings initiated by the Spanish bank La Caixa, the claimant argued that this rule restricted EU freedoms and conflicted with the VAT Directive, as it prevented transactions that would otherwise be subject to VAT — thereby disallowing the possibility of input VAT deduction, which is not available for ITP. The Court, however, upheld the validity of Article 108, concluding that it does not contravene EU VAT law. Consequently, the much-debated provision remains fully applicable and, in all likelihood, will continue to have a long life ahead.

++ Published at the tax newsletter of the German Chamber of Commerce in Spain related to VAT news ++