BackThe General Directorate of Taxes, in its recent binding consultation V0813-23, dated April 5, 2023, sets forth a new criteria for taxpayers under the impatriate regime, with respect to the taxation of long-term remuneration programs granted before moving to Spanish territory (Share Incentive Plans, Performance Shares¸ Stock Options, etc.). In the following, we will summarize the main changes arising from this binding consultation, which entails a modification in favor of the taxpayer of the criteria followed up to now by the Spanish Tax Authorities.
Case under analysis:
This ruling analyzes the scenario of a tax resident in the United Kingdom who moved to Spanish territory during the second half of 2020 to work for a Spanish subsidiary of the group.
As a consequence of that relocation, he applied for the special regime applicable to workers posted to Spanish territory (commonly known as the “impatriate regime” or “Beckham Law”).
Notwithstanding the secondment, the consultant (a director of a British company up to the time of the displacement) maintained the option to acquire shares in the British group, in accordance with a plan offered prior to the transfer. Specifically, part of the right to acquire shares vested on December 31, 2020 (having completed 3 years of the plan and having met the objectives), while another significant part of the plan remained to be vested.
On the assumption that he would be taxed under the aforementioned special regime, and that it would be applicable to him for the years 2021 to 2026, the question raised focuses on whether the employment income obtained from the exercise of the group’s share acquisition rights once he is in Spain (vested or unvested rights) will be subject to taxation in Spain and, should the Spanish Personal Income Tax liability is partial, how to calculate the taxable portion in Spain.
Previous criteria:
The impatriate regime is characterized for offering a favorable tax regime to individuals who move to Spain for work purposes, become tax resident and comply with the requirements set forth in Article 93 of the Personal Income Tax Law 35/2006.
In particular, the main advantage resides in the fact that it allows the impatriate to apply a flat tax rate of 24% on employment income, and also to be taxed exclusively on income from Spanish sources (with the exception of work income, which must be fully taxed in Spain regardless of the place where it was incurred).
In order to identify this employment income that is fully subject to taxation in Spain, Article 114.2 a) of the Personal Income Tax Regulations establishes that “income derived from an activity carried out prior to the date of moving to Spanish territory will not be deemed as obtained during the application of the special regime”.
The application of this rule raised some controversy, especially in the case of long-term remuneration programs granted before moving to Spanish territory, which are paid out after the displacement (common practice in Share Incentive Plans, Performance Shares¸ Stock Options, etc. This is, the uncertainty arose when the income derived from such plans was obtained partly from the work performed abroad and partly from the work performed in Spain.
Until now, the criterion followed was to consider that this income was deemed to have been fully obtained in Spanish territory (and, consequently, taxed in Spain), on the grounds that it did not derive from an activity “completely” carried out prior to the date of relocation to Spanish territory.
This is how the General Directorate of Taxes (DGT) pointed it out in its binding consultation V0610-22 dated March 23, 2022, or the National Court (AN) in its ruling dated February 15, 2023, cases that dismissed the taxpayer’s claims to prorate the taxable base based on the number of days of generation and the number of days of presence in Spanish territory, so that only the remuneration related to the days of presence in Spain would be taxed for Income Tax purposes.
The general taxable income is taxed at a rate of 24% up to a maximum of 600,000 euros, and from 600,000.01 euros onwards it is taxed at 47%.
New criteria:
The DGT, in its recent binding consultation V0813-23, dated April 5, 2023, sets forth a new favorable approach for impatriates.
This new resolution (which replaces the already annulled binding consultation V0610-22) opts for applying a proportional method and confirms that the rule set forth in Article 114.2.a) of the Personal Income Tax Regulations does not apply to the part corresponding to the activity carried out following the displacement to Spain.
Based on the above, the DGT confirms that only the income corresponding to the activity carried out as from the transfer to Spain will be deemed to have been obtained in Spanish territory. Consequently, the proportional part of the employment income for the work activity carried out before the employee’s relocation should not be deemed to be subject to Income Tax in Spain.
Despite the aforementioned progress, it will be necessary to follow the evolution of this new interpretation in future decisions of the DGT and the courts, especially with respect to the clarifications that may arise regarding the calculation of the taxable base (application of the proportional criteria), or the implementation of this allocation rule in the double taxation avoidance mechanisms.
Conclusion:
Following the recent binding consultation V0813-23, dated April 5, 2023, the General Tax Directorate sets forth a new criteria (in favor of the taxpayer) and interprets that the employment income obtained by taxpayers under the impatriate regime, arising from long-term remuneration schemes (Share Incentive Plans, Performance Shares¸ Stock Options, etc.), will only be taxable in Spain on the part generated after the employee’s displacement to Spain.
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