Government approves new Personal Income Tax with lower withholdings for all taxpayers

Moncloa Palace, Madrid

The Council of Ministers approved the amendment to the Regulation on Personal Income Tax (Spanish acronym: IRPF) which contains the first steps of the new tax reform with "a very high social content", highlighted the Minister for the Treasury and the Public Administration Services, Cristóbal Montoro.

In this regard, the Vice-President of the Government, Soraya Sáenz de Santamaría, explained that this regulation, which will come into force in January 2015, contains "important measures to support families and important measures to support those families with a disabled person in their care".

The new legislation "will lower taxes for all taxpayers, but will do so more for those on low and medium incomes, more for those with large families and more for those with people with a disability in their care", pointed out Cristóbal Montoro.

Objectives

Among the objectives sought by the tax reform, the minister pointed to the increase in disposable income for individuals and companies, of around 9 billion euros in the years 2015 and 2016; the boost to job creation through a reduction in tax on income from employment; fostering savings, productive investment and competitiveness, and making the tax system fairer.

Withholdings and payments on account

The new regulation reduces the tax burden on income from employment. Salary withholdings under the IRPF reform will be reduced by an average of 12.5% which will affect some 20 million taxpayers. The minimum threshold for the application of withholdings is increased to 12,000 euros, above which a withholding tax will be applied including a new sliding scale at lower marginal rates.

Pool MoncloaIn 2015 and 2016, withholdings on revenue from savings will be reduced from 21% to 19% and for professionals from 21% to 18%. A new tax rate of 15% will be introduced for professionals with incomes of less than 15,000 euros per annum. The withholding rate for company directors will drop from 42% to 35% and down to 19% for company directors with businesses invoicing less than 100,000 euros.

New deductions

The amount of the deductions incorporated in the new IRPF for large families and for persons with disabilities in their care amounts to 732 million euros in 2015. These benefits, which are compatible and can be accumulated, will result in an annual payment of 1,200 euros or 100 euros per month in the event of choosing to receive it in advance. It is estimated that these "negative taxes" will benefit some 750,000 families, specified the minister.

Those people entitled to these benefits can request them as from 7 January 2015 by Internet, by phone or in person at their local Tax Office. However, the Minister for the Treasury and the Public Administration Services stated that the Tax Office has already sent out letters to families to inform them of their entitlement to this aid.

Reform of the Criminal Procedure Act

The Council of Ministers analysed the Draft Constitutional Law to modify the Criminal Procedure Act, which contains some of the democratic regeneration measures announced by the President of the Government on 27 November in the Lower House of Parliament, announced the Vice-President of the Government.

Soraya Sáenz de Santamaría pointed out that the new legislation seeks to speed up criminal justice so that "there is no sense of impunity" and the times allocated to proceedings are "reasonable and sufficient" to hand down a ruling. It will also enable "the proceeds the defendant or offender has taken from the public purse or has benefitted from through criminal activity" to be recovered.

The Minister for Justice, Rafael Catalá, announced that the aims of the reform are to improve the speed and efficiency of the criminal procedure system; strengthen procedural guarantees; establish a regulatory framework for technological investigation; establish a general second criminal stage of proceedings and establish an autonomous procedure for seizure of assets to fight corruption and organised crime.

Criminal process and term of pre-trial phase

Pool MoncloaIn order to speed up the criminal process, the rules on related actions that frequently lead to an accumulation of criminal processes for different offences, which thus delay their resolution, are modified. Rafael Catalá pointed out that now "each offence will result in a separate pre-trial phase", and hence rulings will be handed done in much shorter time periods. Furthermore, anonymous police reports will no longer be sent to the courts but will be handled on an administrative basis until such time as the alleged offender is arrested, in which case this will be handled though the courts.

Simple cases will have a maximum ordinary instruction phase of six months from the date of the order to initiate summary proceedings or preliminary proceedings. For complex investigations, the period will be 18 months which may be extended for a similar maximum period when the grounds so justify. Furthermore, fast-track trials will be extended to cases which are simple to process, such as theft, minor threats and driving under the influence of alcohol.

The Minister for Justice underlined that, as a result of these measures, "the burden on the judges and prosecutors involved in the instruction phase of particularly complex cases will be reduced".

Procedural guarantee and legal certainty

Rafael Catalá explained that the future constitutional law will step up the level of existing legal aid, since, among other things, "it guarantees confidentiality between the detainee or defendant and his counsel".

On another note, the legislation regulates the interception of telephone communications, recordings of verbal conversations and images, the use of technical monitoring devices and the registration of data storage devices. "The aim is to provide judges, prosecutors and law enforcement agencies with tools for the investigation of highly complex offences. This type of measure will require judicial authorisation and respond to principles of speciality, exceptionality, suitability and proportionality", clarified the minister.

The text also regulates the second stage of criminal proceedings. The minister estimates that some 5,000 cases could be subject to this second stage and stressed that "there is sufficient capacity to provide for this without the need for new resources but by reassigning existing resources".

The minister pointed out that the new legislation "includes new ways of seizing assets to help provide us with more effective tools for fighting corruption". It creates an autonomous procedure for the seizure and recovery of assets from criminal activities, and an office specialised in the recovery and management of assets deriving from criminal practices.

Offshore patrol vessels

Pool MoncloaThe Council of Ministers authorised the Ministry of Industry, Energy and Tourism to sign a collaboration agreement with the company Navantia in relation to the pre-financing of a programme to build two maritime offshore patrol vessels (OPVs).

The Vice-President of the Government specified that, under this project, "for every euro invoiced by Navantia, a total aggregate demand from the Spanish economy of 3.1 euros exists and the GDP of the Spanish economy increases by 1.2 monetary units".

For each 1 million euros invoiced annually under the project - the total financing commitment approved will be for 335 million euros - close to 17 direct or indirect jobs will be created annually for a period of four years, which is the time estimated to build the OPVs, with a direct and indirect added value for the economy of approximately 114.8 million euros per annum. During the ship-building period, close to 1,350 direct and indirect jobs will be created annually.

The intention of the Ministries of Defence, and Industry, Energy and Tourism is to speed up the execution of these contracts and the implementation of the commissions so that work can be started in the coming weeks at the ship-building yards affected, said Soraya Sáenz de Santamaría.

Other agreements

The government agreed to submit the Foreign Action Strategy to Parliament, which is an instrument to help plan, monitor and coordinate the State Foreign Action service and provide a framework for decision-making.

Soraya Sáenz de Santamaría highlighted that "for the first time, Spain will have a key instrument for medium- and long-term planning of its foreign policy and action service".

The government also studied the Draft Bill on the Organisation, Supervision and Solvency of Insurance and Re-insurance Companies.

Current affairs

Pool MoncloaWhen asked about the proposal made by the Socialist Party to create a sub-committee to study the reform of the 1978 Constitution, the Vice-President of the Government highlighted that constitutional reforms are possible, indeed they have taken place in our peer countries and in our own country, as in the case of the 2011 reform of Article 135, for which an agreement was reached between the two main political parties.

Mechanisms and procedures exist to that end, but what is essential is that, since this is "such a serious issue" that the party that moots this, in this case the Socialist Party, "has this clear" and "makes specific proposals to improve the system"; however, "they haven't explained even the most basic issues to our citizens", she stressed.

As regards the recent release of ETA terrorists, Soraya Sáenz de Santamaría said that "our citizens don't understand this" and "neither do we". "The government agrees with the State's Attorney-General to lodge an appeal" against this decision and "we want the victims to be aware of this", she concluded.

In relation to the concealment of the financial reality of Bankia by some of its top executives, the Vice-President of the Government highlighted that in relation to past action "there is a judicial procedure under way and it will be up to the judge to decide on the respective liabilities". In relation to the current situation, she said that, following the wide-ranging reform of the financial system by the government, our financial institutions have managed to receive good marks from the European Central Bank and thus recover the confidence of clients and depositors.

In response to the interest shown by journalists in the government's position on a special tax for major corporations, such as Google and Amazon, the Minister for the Treasury and the Public Administration Services commented that the government is actively participating within the OECD so that the tax on multinationals "will be levied where they generate their activity and their profits". These decisions must be adopted by the European Union and for that reasons "the President of the Government will take up this issue at the next European Council".

Furthermore, Cristóbal Montoro confirmed that the tax reform will allow for the list of late taxpayers to be published "as from a certain level" and of tax evaders who have been "classified as such by the justice system in a binding court ruling".