Students taking the Masters in Finance and Accounting gained an insight into the tax reforms in relation to Corporate Tax. Josep Paños, a graduate in Law at the UB, lawyer, administrative director and Chairman of ACAT (Catalan Association of Tax, Accountant and Employment Consultants), explained all of the details in relation to the reforms deemed to be necessary to reactivate the economy, in contrast to the current regulations, stating that, at ACAT, they question the current tax situation, characterized by “disperse regulations that hinder application and execution”. According to Paños, there is currently a great disparity between taxation and accounting, with cumbersome, uncertain and changing rules, an excessively temporary and transitory nature with measures merely for withholding purposes, with a Tax Agency that has an indirect regulatory capacity, high interest rates and double taxation of dividends.
Within this framework, Josep stated that the Tax Agency emphasized that the greatest increase in tax revenue has been from consolidated groups, which included the largest companies in Spain. The idea that large companies evade taxation is widespread, particularly in the case of those listed on the stock exchange. “The latest official figures show that the real interest rate on the profits of consolidated groups is around 6% rather than 15%”.
In his presentation, Paños wondered how it is possible to have such high marginal rates with such low tax revenue, and he went on to say that the only possible explanation is that the tax bases on which these high rates apply avoid the application of these rates. The explanation involves the strong black economy, being a country that is unattractive to qualified human capital and physical capital, and the high tax withholdings that exist. “The ridiculous thing about the tax system in Spain is that, despite having high tax rates, the effective rates are extremely low. For instance, in the case of Personal Income Tax, the average effective rate is 15.1%, while in the case of corporate tax, it is 17.7%”.
According to Paños, lots of things could be done to reduce expenditure, such as the abolition of the Senate, the elimination of the duplicated functions of the State, Regional and City Government, etc. Therefore, tax advisors advocate reforming Corporate Tax in a different way that reactivates the economy. The foundations would be a simple and secure tax with a low tax rate of 10-15%, and the elimination of deductions and allowances, the abolition of special regimes, whereby non-profit organizations have a tax rate of 2-4%, leading to a reduction in indirect costs, with greater coordination between taxation and accounting authorities, and in which the expenses from previous financial years can be recouped.
With these measures, according to Paños, the main advantages would be greater revenue through more attractive tax rates, increased revenue for consumption and growth in the economy through increased spending, the elimination of the culture of litigation and the removal of the administrative and legal bottleneck, as well as increasing the number of taxpayers.
The Chairman of ACAT went on to explain some of the current measures applied by the Government, but he did not believe that they were going to work. These measures include capitalization reserves and capping, deductions for cases of insolvency, related-party transactions, non-deductible expenses, accounting errors, financial leases and negative tax bases.