The main lines of tax reform

Carmen Jover, Professor of the Finance, Accounting and Control Department

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There is no doubt that taxation is an instrument that guarantees the "constitutional social contract" that allows all citizens to access public services, including free, universal public health, which has been of great importance in these times of health crisis. An idea firmly defended by the Minister of Finance, Mrs. Montero.

At the beginning of this 2022, the Ministry is awaiting the report of independent experts on the next tax reform that will propose the reforms that the government must undertake in tax matters, and of which, so far, the Ministry does not know the guidelines, since the members of said committee have been given total freedom.

This committee of experts is working on three fundamental pillars of the next tax reform, such as the taxation of corporate tax, the taxation of the digital economy and emerging activities, and the taxation of wealth.

If there is an issue that creates consensus among experts, it is the need to renew the tax system to adapt it to the economic and social reality

Regarding the corporate tax reform, Montero has defended that it is in line with the new pillars proposed by the OECD, of a global minimum corporate tax of 15%.

Another of the government's reform plans is that of the new environmental taxation, which, according to the Ministry, is not designed either in our country or in the international group, with a tax collection effort, but to encourage measures that respect the environment. All this with the aim of changing the behavior of companies and citizens and increasing respect for the environment.

If there is an issue that creates consensus among experts, it is the need to renew the tax system to adapt it to the economic and social reality.

Both a national and international corporate tax reform must be addressed. At the international level, in the case of multinational companies with a certain level of turnover, they should pay a part of their profit in the country where their services are provided, despite not having a permanent establishment there, and secondly achieve a global minimum tax of 15%. At a national level, certain aspects must be modified in the current tax, such as eliminating the limitation of deduction of financial expenses, eliminating the limitation of compensation of taxable bases, achieving once again the exemption of 100% of dividends and sales of participations of entities of the that certain requirements are met; as well as review in depth the fractional payment system.

Environmental taxation must be addressed, and the regulations that are now dispersed and diverse depending on the regulations of each Autonomous Community must be reunited

Environmental taxation must be addressed, and the regulations that are now dispersed and diverse depending on the regulations of each Autonomous Community must be reunited.

Another point to be addressed is the taxation of wealth, especially in relation to the Wealth Tax and the Tax on inheritance and donations. As for the Wealth Tax, its existence must be rethought, since we are the only European country in which it is still in force, it is an anachronistic tax that does not achieve the intended objective, which is the distribution of wealth.

Regarding inheritance tax, the major differences between the Autonomous Communities should be analyzed and whether the government should introduce reforms that unify the maximum and/or minimum to be taxed, to avoid movements of people for tax reasons within the same country.

We need an efficient, clear and simple tax system, a global, modern and efficient tax system

Finally, it is necessary to consider what the maximum rate of income tax should be. Let us remember that as of the 2021 declaration, some Autonomous Communities will reach a maximum rate of 50%. A few years ago the Courts in Germany ruled that a marginal rate of 50% was considered confiscatory. However, in the years after the real estate crisis, a marginal maximum of 56% was reached in Catalonia. Such high marginal rates were considered to discourage investment, and the generation of wealth that is the basic engine to continue with the welfare state that we all seek.

It is necessary to achieve a more efficient, clear and simple tax system, to achieve an easy application, a reduction in conflict and to achieve the legal certainty necessary for a global, modern and efficient tax system.