New Spanish-German tax treaty enters into effect

14 December 2011

The German parliament, the Bundestag, announced the submission for ratification of the bill for a double taxation and tax fraud avoidance treaty for income and wealth tax between Germany and Spain on October 19, 2011. The treaty was signed by Germany and Spain on February 3, 2011.

When the new treaty goes into effect three months after its ratification, it will replace the Bonn treaty signed on December 5, 1966 which is still currently in force.

The treaty introduces, amongst other relevant issues, important changes in the taxation of real estate development companies, pensions, interests, partnerships and the exchange of information between the tax authorities for both countries. For the purposes of this article, we are focusing on the date on which the treaty will, from a practical point of view, go into effect.

It is foreseen that the treaty will go into effect 3 months from the date of parliamentary ratification by both countries. Therefore, and considering that we are almost at year’s end, the treaty will most likely go into effect during 2012. It will apply to tax withholdings in Spain resulting from amounts paid after January 1st of the calendar year following its entry into effect. Therefore, and subject to the entry into force in 2012, the new treaty will apply to income paid after January 1, 2013.

As regards all other taxes, the new treaty will apply to those due in tax periods which commence after January 1 of the calendar year following the treaty’s entrance into force (presumably 2012). Thus, they will apply to all recurrent taxes whose taxation period begins in 2013.

Lastly please note that, regardless of the foregoing, certain provisions of the treaty relating to non-discrimination of citizens of one state, the exchange of information, amicable proceedings, etc, will apply to the taxes, tax credits and tax information that predate the entry into effect. That is, said rules will apply retroactively.
With regard to the foregoing, and in view of the nature of the income and the types of taxes that might apply, the date of application of the new treaty may vary, and to that end a preliminary evaluation of said issue is recommended in order to avoid unexpected surprises involving unwanted taxation.

For further information, please contact Gustavo Yanes: