The US Senate Financial Commission voted in late July in favor of unlocking a decisive amendment to the tax agreement between Spain and the US which updates the measures to avoid double taxation and prevent tax evasion, which already existed with the 1990 Convention.
The American Club of Madrid will be discussing the different aspects of how this new treaty between Spain and the USA will avoid double taxation. We have two upcoming events so please join the American Club of Madrid at our monthly Business Lunch on March 19th, as well as the Need To Know Seminar “New Treaty between Spain and the USA to avoid double taxation” on February 19, 2020.
In the meantime, here is more information about the new agreement below:
The new Agreement signed in 2013, in close relationship with FATCA, was pending from the US Senate Financial Commission for the reluctance of some senators (for example, Rand Paul, Republican senator). The main reluctance was that, with the automatic exchange of financial information provided by FATCA, foreign governments could have access to the tax information of US citizens. In the same situation were the treaties with Luxembourg, Switzerland and Japan.
The new protocol will enter into force when it is ratified by the full US Senate, possibly this summer, and contemplates changes to facilitate direct investments between Spain and the US.
On the other hand, unilaterally, the tax reform approved by Donald Trump last 2017 included the possibility of including in the Treaty a new tax of 5% to 10% on interest, fees and services to entities outside the US.: Base Erosion Anti-Abuse Tax or BEAT, which has not reached fruit set.
The most important changes with respect to the 1990 Convention, in force, are indicated below. It is a treaty that consists in avoiding double taxation of US citizens because they are obliged to submit their income tax returns, reporting worldwide income, annually in view of their status as "US Persons" (= US Citizens, Green Card Holders and Resident Aliens), in addition to the Income Tax Return in Spain, IRPF, for its status as residents.
The most important changes that are modified with the new Convention are:
For interests, dividends and capital gains, among others, this protocol ends taxation in source for residents in another country, except in the case of alienation of real estate or companies that have, above all, real estate as an asset.
Taxes on royalties disappear.
For individuals with a pension plan who wish to transfer from one country to another, the protocol allows the transfer of these funds to the other country without having to be subject to taxes. US pensions will not be taxed in Spain unless there are distributions.
A new regime for exchanging information and administrative assistance between both countries is being developed, extending this collaboration to other taxes not included in the Convention.
In general terms, we can say that this is good news for both countries by improving conditions to avoid double taxation.