Executive summary

On 28 December 2022, the Spanish Government published in the Official Spanish Gazette (BOE for its acronym in Spanish) Law 38/2022 of 27 December 2022that establishes a temporary levy on energy and on credit institutions and financial credit establishments and which creates the temporary solidarity tax on large fortunes and modifies certain tax regulations (the Law).

The Law creates a new levy "ex novo" that will be applicable to credit institutions and financial credit establishments operating in the Spanish territory whose total gross income from interest and commissions in 2019 (pre-Covid) was equal to or greater than €800 million.

Credit institutions and financial credit establishments subject to this levy should pay in September 2023, with an advance payment due in February, 4.8% of the sum of the net margin on interest and commissions for the immediately preceding year.

The nature of the levy is temporary, with an initial duration of two years (2023 and 2024). The Government will evaluate, subsequently, its maintenance on a permanent basis.

The amount of the payment and its advanced payment will not be considered as a tax-deductible expense for Corporate Income Tax purposes.

Detailed discussion

Background

Last July, the Socialist and Unidas Podemos parliamentary groups submitted a new draft law to the Congress of Deputies to establish, among other things, a new temporary levy on credit institutions and financial credit establishments (EFCs) in order to "capture" the extraordinary profits obtained by the credit institutions derived from the rise in the interest rates and to reinforce the so-called "pacto de rentas."

On 28 December 2022, the Spanish Government published in the BOE the Law that establishes the new levy on credit institutions and EFCs, which will have the legal nature of a non-tax public economic levy and will be applicable to those credit institutions and EFCs operating in the Spanish territory whose total gross income from interest and commissions is equal to or greater than €800 million.

According to estimates made by the Ministry of Finance and Public Function, this benefit is expected to raise approximately €1,500 million.

The regulation of the new levy raises serious doubts as to its compatibility with the principles and rights guaranteed by the Spanish Constitution of 1978 as well as with European Union (EU) law.

Nature of the levy

The levy has been established with the legal nature of a non-tax public economic levy and is governed by the provisions of the Law that regulates it and, supplementarily, by Law 47/2003, of 26 November (General Budgetary Law) and Law 58/2003, of 17 December (General Tax Law).

This legal configuration is not trivial, since it affects not only its legal framework or the rights and obligations of those obliged to pay the levy, but also the general principles applicable to it and, therefore, the potential means of appeal, should, its constitutionality be questioned.

The amount of the levy, including its advanced payment, will not be considered a tax-deductible expense for the purposes of determining the taxable base for Corporate Income Tax purposes.

Territorial and temporal scope

The levy will apply to the Spanish territory.

The levy will enter into force on 1 January 2023, and it is expected to be in force temporarily for the years 2023 and 2024. Notwithstanding the foregoing, the Law itself provides that in the last quarter of the 2024 fiscal year, the Government will evaluate whether it will be maintained on a permanent basis.

Entities subject to the levy

Credit institutions and EFCs operating in the Spanish territory whose total interest and commission income for 2019, calculated in accordance with the accounting regulations applicable to them, is equal to or greater than €800 million, will be obliged to pay the levy.

This amount will be understood to refer to the tax group when the entity belongs to a tax group or to the mercantile group, as the case may be.

The wording of the Law is not clear in relation to the obligated entities:

• On the one hand, it does not specify that the €800 million must be accrued in Spain. This issue is being debated because the literal wording refers to "entities" and "calculated in accordance with their applicable accounting regulations" (usually the financial statements of entities that have branches also include the income/expenses of these branches) and this literal interpretation would lead to the understanding that any credit entity that, in global terms, had interest and commission income exceeding €800 million (the vast majority) would have to pay the levy regardless of whether its business in Spain did not reach those thresholds, which it appears would probably not be in line with the legislator's objective.
• On the other hand, considering the literal wording of the Law, it seems that the branches in Spain of foreign credit institutions (or EFCs) would also be obliged to pay the levy. However, the same doubt that arises in the previous paragraph is relevant in relation to branches in Spain of foreign credit institutions. Should it be understood that branches of foreign banks are subject to the levy regardless of whether they do not meet the threshold for their business in Spain? However, this does not seem to be the intended goal, though the literal wording of the Law allows the reaching of this conclusion. Once again, this is a controversial issue.

Levy base

The basis for calculating the levy will be the sum of the net interest income (interest received minus interest paid) and the net commissions income (collected minus paid) derived from the activity carried out in Spain that appears in the profit and loss account of the obligated entities for the calendar year prior to the year in which the obligation to pay arises, calculated in accordance with the applicable accounting regulations.

In other words, to determine the levy for 2023, the net margin on interest and commissions for 2022 should be considered, and for the levy for 2024, the net margin on interest and commissions for 2023 should be considered.

Again, the wording of the Law is not clear. In particular, in relation to the levy base, some of the following questions, among others, could be raised:

• Should commissions and interest obtained by entities that, being included in a tax consolidation group, are not considered as credit institutions or EFCs, be considered? And what happens with the commissions derived, in general, from activities for which it is not mandatory to obtain a banking license?
• Should commissions or interest received for activities carried out outside of the Spanish territory be taken into consideration?
• Is it possible to consider, for the purpose of determining the levy base, the remuneration (interest) paid in relation to issues of hybrid instruments (CET1 or AT1 type) even though it has not been recorded in the profit and loss account (and has been recorded as equity)?

The above questions are just a few examples of interpretative doubts that could have an impact not only on the definition of the levy base but also on the definition of the objective scope of the levy.

Levy rate

The amount payable will be the result of applying the rate of 4.8% to the levy base (the sum of the net margin of interest and commissions).

Accrual and payment of the levy

The payment obligation will arise on the first day of the calendar year, i.e., 1 January 2023 (for year 2023).

The levy must be paid during the first 20 calendar days of September of each year.

An advance payment of 50% of the total levy to be paid during the first 20 calendar days of February of each year is also foreseen, which will be deducted from the final amount to be paid for the year. Given the possible difficulty for the entities to know the exact amount of the sum of the net margin of interest and commissions during this period, it is provided that this amount can be estimated according to a reliable calculation method.

Prohibition of charge back

It is expressly forbidden to charge back the levy to third parties (i.e., clients or customers), either directly or indirectly.

Failure to comply with this prohibition will be considered a very serious infringement and will be penalized with a proportional pecuniary fine of 150% of the amount charged back.

This infringement will not be of a tax nature and will be subject to the general administrative sanctioning regime.

It is established that the Spanish Competition (Antitrust) Regulator responsible for enforcing competition law (Comisión Nacional de los Mercados y la Competencia) will monitor compliance with this requirement and will be in charge of any penalty procedure.

Levy management

The levying, management, verification and collection of the levy is attributed to the corresponding bodies of the Central Delegation for Large Taxpayers of the State Tax Administration Agency (Delegación Central de Grandes Contribuyentes de la Agencia Estatal de Administración Tributaria).

Formal obligations

The hearing and public information process has been initiated for the Draft Order to approve the forms for self-assessment and advance payment of this levy, Form 797, "Temporary levy on credit institutions and financial credit establishments. Self-settlement" and Form 798, "Temporary levy on credit institutions and financial credit establishments. Advance payment," and to establish the conditions and procedure for its submission.

Future actions

As mentioned above, it can be contended that the new regulation may infringe principles and rights recognized by the Spanish Constitution of 1978, such as legal certainty, the prohibition of arbitrariness of the public authorities, freedom of enterprise or the principle of legality in sanctioning matters. Likewise, it may contravene the regulation of the financial system of the EU as well as the principle of free competition.

Those obliged to pay cannot appeal directly against the Law but they can challenge it by means of challenging the Order to approve the forms which is currently in the public information process as well as, in any case, by challenging their own self-assessments with respect to both the advance payment and the payment of the levy.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, S.L.P., Madrid

• Pablo Ulecia Rubio | Pablo.Ulecia.Rubio@es.ey.com
• Maximino I. Linares Gil | maximino.linaresgil@es.ey.com
• Fernando de Vicente | Fernando.De.Vicente@es.ey.com