Tax: End of Non-Doms Regime in the UK. Solution: Welcome to Spain

Corporate: Shareholders’ Information Rights and Limits to the Revocation of Corporate Resolutions as a Result of their Infringement

Real Estate: Prohibition of Holiday Rentals in a Community of Property Owners

Energy: Proposal for a Regulation on Supply and Contracting of Electricity

TAX

End of Non-Doms Regime in the UK. Solution: Welcome to Spain

ALEJANDRO PUYO
Partner

The current tax treatment for UK resident non-domiciled individuals (non-doms) is to be ended from April 6, 2025.

The non-dom regime has formed part of the UK’s tax system for several years. When the requirements were met, UK resident individuals whose permanent home was outside the UK were entitled to benefit from the ‘remittance basis’, effectively exempting their foreign income and gains (FIG) from UK taxation unless remitted to the UK.

Faced with this imminent end, a number of non-doms are considering relocating to another jurisdiction. For those who want to remain in the European continent, Spain could be an attractive option.

In Spain there is a special tax regime, so called the Beckham’s Law, that implies important savings on taxation. The name comes from the English football icon David Beckham, who was, among others, first to apply for this regime upon joining Real Madrid football club.

The Beckham Law in Spain represents a significant tax opportunity for expatriates working in Spanish soil. The special tax regime implies a substantial tax reduction on Spanish taxable income for eligible individuals. Accordingly, where Spanish general tax rates can imply, for example a 47% tax rate, the Beckham Law can cap the tax bill to a 24% for incomes not exceeding €600,000.

This beneficial tax regime applies during the first six years of residency in Spain, providing important savings and making Spain an attractive destination for global professionals.

As of January 1st, 2023, further modifications have expanded eligibility to a broader range of expatriates, including those employed by foreign companies—a move aimed at stimulating Spain’s burgeoning start-up ecosystem.

Under this regime, not only the applicant but also their spouse and children under 25 are entitled to preferential tax treatment on their income and assets located within Spain. However, it’s essential to note that despite these benefits, capital gains and investment incomes sourced in Spain are still subject to taxation at rates between 19% and 28%.

Pursuant to the above, the Beckham Law implies to center the taxation on Spanish-sourced income, excluding the taxation of foreign income. Under this regime, expatriates are required to pay taxes only on the income that is generated within Spanish territory. This approach allows expatriates to structure their finances in a manner that minimizes their tax liability in Spain while simultaneously reducing risk through income diversification.

In addition, the Wealth Tax, will not be applicable to rights and assets located abroad. The Beckham Law will be applicable to the following individuals:

1. Foreign workers who relocate to Spain to engage in an economic activity, specifically those employed by a company.

2. Expatriates who hold managerial positions or other significant roles are considered among the administrators or employees.

3. Individuals who move to Spain with the intention of performing remote work for an employer.

4. Highly qualified professionals who offer services to start-up companies, or are involved in training, research, development, and innovation (R+D+i) activities, with at least 40% of their income derived from invoicing related to these services.

5. Company administrators who take up positions in Spain, provided they do not own more than 25% of a company that is classified as asset-managing (i.e. holding company). Importantly, administrators can have more than a 25% ownership stake if the company is not considered an asset-management entity. In these cases, we recommend creating a company that engages in a real economic activity.

6. Family members of the remote workers, which includes the spouse and any dependents.

October 2024

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CORPORATE

Shareholders’ Information Rights and Limits to the Revocation of Corporate Resolutions as a Result of their Infringement

GERARD LLEBOT
Senior Associate

The Supreme Court ruling of May 29th, number 762/2024 has changed the precedent case law related to the revocation of corporate resolutions based on the lack of compliance with the shareholder’s information right. In this regard, it is worth noting that the doctrinal modification is not a result of a new interpretative approach by the Court itself, but rather due to the impact that the legal reform implemented by virtue of Law 31/2014 has had on the previous line of case law on this matter.

In this regard, it is noted that Law 31/2024 amended article 204 of the Spanish Companies Act (“SCA”) either by adding new grounds to revoke the corporate resolutions or limiting the application of others. Likewise, with regard to the revocation of corporate resolutions due to infringement of the shareholder’s information right, the aforementioned reform introduces, by virtue of letter (b) of section 3 of article 204 of SCA, the “test of relevance to infringements of the information right”, as a parameter to be applied for the purposes of determining whether the revocation of a corporate resolution is applicable or not .Please find below its wording:

“Article 204. Corporate resolutions suitable to be revoked.”

[…]

3. Neither shall be revocable the corporate resolutions based on the following grounds:

[…]

(b) The inaccuracy or insufficiency of the information provided by the company in response to the exercise of the information right prior to the general shareholders meeting, unless the inaccurate or insufficient information was essential for the purpose of reasonable exercise of the shareholder’s voting right or any other rights of participation.

Regarding the specific case of the Supreme Court at hand, it deals with the objection of corporate resolutions relating to the approval of the annual accounts of a limited liability company brought by a minority shareholder, who alleged the lack of delivery of certain accounting documentation duly requested, and thus considering that the foregoing constitutes a violation of the provisions of articles 196 and 272.3 of the SCA. The information requested and not provided was a list of daily sales for the financial year in dispute and the pay slips of each of the company’s employees. It should be noted that the plaintiff exercised his right under article 272.3 SCA of attending to the corporate registered office to analyze the supporting accounting documentation. Both at first instance and on appeal, the revocation of the corporate resolution based on the infringement of the information right was upheld and confirmed.

On cassation appeal, the Supreme Court refers to its prior doctrinal position regarding the right to information as an independent and autonomous right, despite the fact that, additionally and auxiliary, it could be used for an instrumental purpose of the voting right and to supervise the directors in their accomplishment of duties. However, it then adds that the aforementioned doctrinal position was based on case law prior to the entry into force of Law 31/2014, which, although it did not expressly amend articles 196 and 272.3 SCA invoked by the plaintiff, does in fact affect and amend the aforementioned doctrine as a result of a systematic interpretation approach. In this regard, the ruling of the Supreme Court at hand states: “that not just any infringement of the rules prescribing the right to information justifies objecting the corporate resolutions affected”, as it is required, “to evaluate according to a criterion of relevance, which is the essential nature of the information in order to exercise the right to vote or any other participation right, and from an objective perspective, that of an average shareholder”.

To this end, the Supreme Court makes an important distinction between the concept of “essential” used by Article 204 SCA in contrast with the concept of “necessary” used in a negative sense by Article 197.3 SCA:

“The necessary nature of the information, understood not as essential but as rationally useful or relevant to influence the behavior of the shareholder with regard to the exercise of his rights, is a prerequisite for the obligation to inform to arise. And on the basis that the information is necessary for the exercise of shareholder rights and must therefore be provided, article 204.3.b) LSC prescribes that not every breach of this obligation justifies objecting the resolutions affected. Thus, there may be information that is rationally useful or relevant for the protection of shareholders’ rights that is not essential for the exercise of their participation rights. In such cases, the refusal to provide the information would not justify objecting the resolutions concerned, but it would justify the exercise of other actions (to order the provision of such information).

Based on the above clarification, essential information, referring to the exercise of participation rights, is the information that must be known in order to deliberate and vote on the resolutions concerned. As this exception or limitation to the objectionability of resolutions is articulated, it is up to the shareholder objecting the resolutions to justify this essential nature.”

On the basis of the foregoing, the Supreme Court, applying the aforementioned “relevance test,” determines that the information requested and not provided may not qualify as “essential information” on which to base the vote, and as such, the corporate resolutions relating to the approval of the annual accounts are not suitable to be revoked on the grounds of infringement of the shareholder’s information right.

October 2024

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REAL ESTATE

Prohibition of Holiday Rentals in a Community of Property Owners

MARÍA ELÍAS
Associate

Spain has become one of Europe’s top tourist destinations, which has led to significant growth in the holiday rental sector.

As a result of this, there is a current recurring debate in communities of property owners due to the inconvenience that these short-term rentals tend to cause to neighbours, with the proposal to prohibit this practice being more and more frequently on the agenda of the meetings of homeowners’ associations.

The current tendency of communities of property owners is to limit holiday rentals of units at their meetings under the presumption of disruptive activity and under the provisions of article 17.12 of the Horizontal Property Law, which requires a quorum of 3/5 of the total number of owners representing 3/5 of the participation quotas.

The application of this precept to the prohibition of holiday rentals has been a controversial issue in the courts, as some judgements interpret the term “limit” as including the possibility of prohibiting this activity, while others consider that the verbs “limit” and “condition” the exercise of the activity refer only to the power to establish internal rules to regulate holiday rentals and that, in order to prohibit the activity, it would be necessary to adopt a unanimous agreement.

In this regard, some examples of rules of internal regime collected by the jurisprudence that could be established by virtue of the aforementioned article would be:

• Limiting the number of units that could be used for holiday rentals within the building.

• Disclosure of tenants’ personal information

• Establishment of a rental calendar, setting specific periods of the year when holiday rentals are not allowed.

• Preventing tenants from using certain communal areas

• Requirements for leases such as the payment of a security deposit or taking out liability insurance

• Establish liability of landlords in case of disruption caused by their tenants.

• Imposition of a 20% surcharge on the share of common expenses

• Obligation to provide the landlord’s internal rules to the tenant, including a warning in the lease contract that failure to comply with these rules will be grounds for termination of the lease.

These internal rules, which could be adopted by a three-fifths majority of the owners’ association, did not include a direct prohibition of renting, until now.

The Supreme Court, through a recent Plenary Judgement (therefore a source of jurisprudence in itself) dated October 3, 2024, has clarified the issue by ruling that communities of property owners can prohibit this activity by means of resolutions adopted by a three-fifths majority at a meeting.

The Supreme Court analyses the expressions “limit” and “condition” in the article in question and concludes that, according to the grammatical, semantic and literal criteria, the rule establishes two different and alternative cases: one of lower intensity, which would be the conditioning; and another of higher intensity, the limitation, and that nothing prevents a limitation from actually meaning prohibition of the activity.

With regard to the Court’s interpretation, for the purpose of defining the purpose intended by the laws, this conclusion is confirmed on the basis of the legislators’ intention to favour residential renting over tourist renting and taking into account the difficulties of citizens in accessing rented housing due to the increase in rents due to the increasing phenomenon of tourist renting.

All of the above shows that the interpretation of laws by the courts is not a uniform technical exercise but is rather strongly influenced by social needs. In this case, the Supreme Court’s interpretation reflects a social concern about the problems of access to housing and seeks to provide a solution through the interpretation of the law.

Finally, it is worth noting that the local administration (Town Hall) has the exclusive competence to limit or prohibit holiday rentals by means of limitations or restrictions on the issuing of licenses in specific areas. Thus, if an owner uses their property for holiday rentals without the appropriate license, the homeowners can report them to the Town Hall so that the corresponding inspection can be carried out and sanctions imposed for the illegal activity.

In this respect, although it is common for communities of property owners to act jointly in situations that affect all owners - such as the existence of an illegal tourist apartment- any neighbours could file a complaint individually if they consider that their rights are being infringed or if they are aware that an irregularity is taking place.

October 2024

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ENERGY

Proposal for a Regulation on Supply and Contracting of Electricity

SONSOLES GARCÍA
Senior Associate

Last July 31, the Ministry for Ecological Transition and Demographic Challenge presented a proposal for a Royal Decree approving the general regulation on supply and contracting and establishing the conditions for the marketing, aggregation and consumer protection of electricity. This text was submitted to a public hearing, which ended on September 13, 2024.

Prior to its approval, and as noted in the project report, reports will be requested from the General Technical Secretariat of the Ministry for Ecological Transition, the Ministry of Territorial Policy and the Ministry of Finance, as well as a report from the Data Protection Agency. Furthermore, the mandatory report of the National Commission for Markets and Competition will be sought, and an opinion will be requested from the Council of State.

The draft royal decree basically responds to the following objectives:

(i) The need to review and adapt the current regulation of electricity supply and marketing activities to current realities,

(ii) Adaptation of electricity supply to the energy policy objectives defined at national, European and international level in recent years, in which consumers play an important role.

(iii) Regulatory development of electricity aggregation.

The transposition of the Directive (EU) 2019/944 of the European Parliament and of the Council of June 5, 2019, on common rules for the internal market for electricity, into Spanish law, is also urgent, the deadline for transposition of which expired on December 31, 2020. The Commission sent a letter of formal notice to Spain in May 2022. At this stage, the Commission could lodge an infringement action before the EC Court of Justice for the Spanish government's failure to comply with the transposition obligation. Likewise, an updating process is needed to consolidate the existing regulatory dispersion in the internal regulation.

Main issues addressed by the new Regulation.

1. On energy supply: The conditions that must be met in order to be considered an energy consumer are defined, all their rights and obligations are listed and the Supply Point Information System "SIPS" is regulated in detail.

2. Marketing activity: All the rights, obligations and requirements of traders are included, many of which were previously included through scattered regulations. New obligations include the provision of new guarantees before the corresponding network manager when contracting access to its networks on behalf of the consumer, as well as the obligation to inform the holder of the supply point in the free market in the event of non-payment, of the possibility of using the Voluntary Price for the Small Consumer (VPSC) and applying for discounted rates, indicating that these terms can only be carried out by reference traders.

It regulates the termination of traders’ authorizations and the exchange of information between traders and the grid operators.

3. Aggregators: The proposed royal decree includes the regulatory framework for these new subjects in the electricity system. It establishes the general principles of aggregation as an activity and defines the rights, obligations and requirements of independent aggregators.

4. Electricity supply contracting: Chapter III of the project compiles the general contracting conditions for electricity supply, the different contracting terms available to the consumer, and the minimum content of the supply contract.

This chapter regulates the procedure for the suspension of supply and, in this regard, repeals the regulation established in this area in Royal Decree 1955/2000. A new aspect is the requirement established in the draft for a minimum of one month’s notice before suspending supply to a company or individuals with contracted power of more than 10 kW, which would lead to an increase in debt.

With regard to penalties for early termination of the contract, the draft eliminates the possibility of applying penalties to supply contracts with a contracted power of 15 kW or less (tariff segment 2.0 TD), which basically refers to domestic consumers. For contracts entered into by other consumers (tariff segment 3.0 TD), which includes small and medium-sized companies, the parties will be free to agree on the terms of the contract.

The bill repeals Royal Decree 1435/2002, of December 27, 2002, which regulates the basic conditions of contracts for the purchase of energy and access to low-voltage networks. This Royal Decree establishes in article 4, section 5, the maximum limit of penalties in the event of early termination by the consumer causing damage to the supplier, in relation to all low-voltage contracts, without distinguishing by contracted power. This limit corresponds to 5% of the contract price for the estimated energy pending supply.

As a result of the repeal of this Royal Decree, the penalty may only be applied in low-voltage contracts that exceed 15 kW of contracted power, without establishing any maximum limit for the penalty, but must be freely agreed between the parties, while in contracts with consumers, with contracted power of less than 15 kW, trading companies may not apply penalties for early termination at the request of the consumer.

With regard to telephone contracting, the draft establishes that traders may not carry out advertising or contracting practices not requested by the user over the telephone, unless there is an explicit request by the consumer or when the call is made by the consumer’s own initiative. In these cases, the trader must record the entire call, regardless of who made it, including all the information provided to the consumer and, where appropriate, the pre-contractual information with the basic characteristics of the offer.

5. Consumer protection and empowerment: The bill compiles consumer protection measures and regulates the different complaint options available to consumers. In particular, it includes, as an alternative dispute resolution system, complaints to the Consumer Arbitration Boards, under the terms established in their regulations.

Likewise, the figure of the customer ombudsman is established as an additional consumer protection mechanism whose resolution is binding on the company regarding discrepancies in the billing of contracted services. The implementation of this additional mechanism must be reported by the trader to the National Markets and Competition Commission so that, by virtue of its supervisory powers, it can confirm that all quality and transparency requirements, as well as consumer protection requirements are duly met.

October 2024