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Spain downplays ECB criticism of new windfall tax

Spain's leftist government on Friday defended a proposed windfall tax on banks after the European Central Bank raised concerns that it could lead lenders to provide less credit and damage their capital position.

Published: 4 November 2022 16:04 CET
felix bolaños spain
Spain's new Minister of the Presidency Felix Bolaños has said his government will "study in detail" the ECB's report and that his administration is open to "improving it", whilst stressing that the ECB's verdict is "non-binding". (Photo by PIERRE-PHILIPPE MARCOU / AFP)

The government in July introduced a draft bill to slap a temporary 4.8 percent charge on banks’ net interest income and net commissions in 2023 and 2024 to fund measures to ease cost of-living pressures.

In a non-binding legal opinion published Thursday, the ECB recommended Madrid conduct a “thorough analysis of potential negative consequences for the banking sector” of the tax.

This is needed “to ensure that its application does not pose risks to financial stability, banking sector resilience and the provision of credit.”

Asked about the legal opinion on Friday, Spain’s Economy Minister Nadia Calviño said the government had “already taken into account the questions raised” by the ECB when it drew up the tax.

Spain’s Minister of the Presidency Felix Bolaños told Spanish public broadcaster RTVE that his government will “study in detail” the ECB’s report and that his administration is open to “improving it”, whilst stressing that the ECB’s verdict is “non-binding”.

Spanish banks have posted record profits and have “very high solvency ratios” so there is “no reason” for this temporary tax” to lead to less credit being granted by lenders, she added.

Top executives at Spanish lenders such as Santander and BBVA have said that the proposed tax would directly hit their profitability.

Socialist Prime Minister Pedro Sánchez’s government has said it expects to raise around €3 billion with the tax by 2024, which it will use to fund measures to help consumers deal with soaring inflation.

Like other countries, Spain has been struggling with soaring inflation as a result of the fallout from the war in Ukraine and the reopening of the economy after pandemic-related lockdowns.

Inflation in Spain peaked this summer at 10.8 percent in July, its highest level in 38 years, before moderately slowing to 7.3 percent in October — still well above normal levels.

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AMERICANS IN SPAIN

EXCLUSIVE: What the new Spain-US social security deal means for Americans

The Local speaks to the Spanish government and tax experts to understand what the new social security and pensions agreement between the United States and Spain means for American workers, digital nomads and pensioners in Spain.

Published: 15 May 2024 11:10 CEST
EXCLUSIVE: What the new Spain-US social security deal means for Americans

In early April, the United States and Spain announced a new social security and pension agreement.

The first update to the bilateral agreement between the two countries since 1986 was announced by US Ambassador to Spain, Julissa Reynoso, and Spain’s Minister of Inclusion, Social Security, and Migration, Elma Saiz.

The official agreement is unpublished so The Local spoke with a representative from Spain’s Ministry of Inclusion, Social Security, and Migration as well as international tax experts to understand the agreement in more detail.

Key aspects of the agreement

The Ministry told The Local Spain that the agreement is a step towards, bolstering mobility between Spain and the United States by improving pension calculations and social security protections.

The agreement has to do with the accumulation of benefits and affects working Americans living in Spain. There are two main components; the first affects which system people pay into (Spanish or American) and the second maximises the amount people can collect from social security.
 
Regarding paying into social security, the new agreement extends the “posting period” from three years to five years, with the possibility of extending it to seven years.

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This is meaningful for US employees who are working in Spain and means that they can now pay into the US social security system, rather than the Spanish social security system for longer.

Whereas the employee contributions in Spain and the United States are similar, 6.4 percent in Spain and 6.2 percent in the United States, the rate that employers pay differs greatly. In the United States the employer pays 6.2 percent into social security, whereas in Spain they pay 31 percent.
 
Why does this matter? “Previously when Americans moved to Spain, US employers were cutting the amount that they paid in salary because the cost of employment went up so much”, Louis Williams, Co-Founder and CEO of Entre Trámites, told The Local Spain.

It’s also made employers hesitant to grant digital nomads an Employer of Record (EOR) which would allow American workers to be on a Spanish contract.

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In terms of collecting benefits, the representative from Spain’s Ministry of Inclusion, Social Security, and Migration says, “In the calculation of the Spanish pension there have been technical modifications that will benefit especially those people who developed their last working life in the United States, without this harming those who have worked in Spain immediately before requesting the benefit.”

In other words, under the new agreement, after calculating a person’s benefits under each country’s system, the recipient will be awarded the most beneficial of those two calculations.

Impacts for self-employed workers and digital nomads

According to the Ministry, “The agreement allows self-employed workers to temporarily move to the other State while maintaining their legislation, a possibility that was previously restricted only to employed workers.”
 
This has big implications for people who avoid moving to Spain because of the complicated social security contributions scheme, as they’ll now be able to continue paying US social security taxes (rather than Spanish) for up to seven years.
 
“The interesting thing is if this is extended to digital nomads because it would make the digital nomad visa more attractive,” says Williams.

“Why? Because if you’re posted by an employer (who can now avoid high Spanish social security taxes) you’re eligible for Beckham’s Law.” The law, which does not extend to autonomous works, can cap tax liabilities at 24 percent.
 
Being posted could make life much simpler, according to Elliott Locke, ACSI, co-founder of abroaden, a financial wellbeing and education start-up for people living abroad headquartered in Barcelona.

“The calculus is harder for freelancers given the different legal structures and methods for freelancing between the two countries. In many ways, if an American moves here to work remotely, it could be beneficial for them to have their US-based employer hire them on a local contract through an employer-of-record,” Locke told The Local.
 
In short, the new agreement could make it more attractive for U.S. companies to post employees in Spain, making them eligible for Beckham’s law and allowing autonomous workers to pay into the U.S. social security system, making it more beneficial and easier to be a digital nomad in Spain.

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Who benefits from the new agreement?
 
The people who will feel this new agreement the most are employers, digital nomads, retirees who have paid into both systems over the years, and finally, civil servants. “Spain has incorporated as possible beneficiaries of the Agreement those people who have contributed to the civil servant’s regime (passive class regime), who were excluded in the previous Agreement,” says the Ministry.
 
When can we expect the new agreement to come into force?

Don’t hold your breath; this is Spain after all, but we can expect the agreement to come into force within the next two years.

The deal has to pass through Congress before approval, which is likely why it has not yet been published. If things move quickly, people could expect to benefit within a year.

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