Capital gains tax: Commission opens a second infringement procedure against Spain
European Commission - IP/06/1407 17/10/2006
Brussels, 17 October 2006
The European Commission has opened a second infringement procedure against Spain for not having complied with a judgement of the European Court of Justice (ECJ) on capital gains tax. The Court decided that Spain violated the principles of free provision of services and of free movement of capital by maintaining a less favourable tax regime on capital gains on shares of companies not established in Spain. If a Member Sate does not comply with a judgment of the ECJ, the European Commission, in application of Article 228 EC, starts a second infringement procedure. If the case ends up again before the Court, the latter may impose a lump sum or penalty payment on the State concerned.
By a judgement of 9.12.2004 in the case C-219/03, the Court decided that Spain violated the principles of free provision of services (Article 49 EC) and of free movement of capital (Article 56 EC) in applying capital gains tax under more favourable conditions to shares traded on Spanish stock exchanges than for shares traded on the stocks exchanges of other Member States.
Spain has not transmitted any information to the Commission on the amendments of its legislation. In its submission to the Court, Spain had argued that the existing legislation (entered into force in 2003) as interpreted by the Tax Administration already extended the domestic regime applicable to Spanish shares without any difference to those traded on a foreign stock exchange. In the Commission's opinion, the most recent modifications of the Spanish law did not affect the specific provisions which were at stake in the Court procedure and, in any case, an interpretation of those provisions at the administrative level was not enough to guarantee the security of law and to remedy to the committed violation.
Under Spanish legislation applicable to shares bought before 31 December 1994, capital gains on shares of companies quoted in the Spanish financial markets benefit from a 25% reduction in the tax rate whereas the equivalent reduction for shares of companies quoted in financial markets other than Spanish is only 14.28%. (see IP/03/76 and IP/02/457).
The Commission's reference number is infringement 2000/4854.