New windfall bank tax announced by Spanish government

In his state of the nation speech to the Congress of Deputies on 12 July 2022, the Spanish Prime Minister, Mr. Pedro Sánchez, announced the Spanish government’s intention to raise an additional €1.5bn in taxes during 2023 and 2024 from the banking sector. In particular, this is to be raised from “big banks as they were already starting to benefit from expected interest rate rises”. Though he gave very little in the way of detail, apparently the government is seeking to tax additional profits expected to be made by banks during 2022 and 2023. No further details were given at this stage by the Prime Minister concerning the nature of the tax, the rates or how it would work.

The Spanish Minister of Finance, Mrs. Montero, subsequently pointed out that the new, temporary, higher tax on the banking sector is intended to impact only groups with more than €1bn of annual turnover. According to the press, this should limit the impact to the largest nine Spanish banking groups. Mrs. Montero also clarified that this tax measure will be implemented through a separate draft tax bill which should be filed and discussed shortly at the Spanish parliament in parallel with the draft annual budget bill, with a view to being enacted before year-end. It is intended to have (retroactive) effect from 1 January 2022.

As a result of the announcement, when the Spanish stock exchange closed, Spanish listed banking groups had suffered a fall exceeding €5bn, which mainly impacted Spanish banking groups with a higher proportion of domestic operations, with less impact for larger groups with more diversified businesses.

Comment

In contrast to the tax surcharge on utilities, which had already been announced and had been the subject of public and political debate for some time, this announcement relating to the banking sector came as a total surprise. This has been publicly confirmed by all relevant banking and trade associations.

As the announcement lacks any detail, the nature of the additional tax which the Spanish Government is seeking to impose on the banking sector is currently unclear, even whether it will be a direct or indirect form of taxation. Though, based on the purpose of the new measure as announced by Mr. Sánchez at the Congress - to subject to tax expected higher profits - the main expectation is that it will be implemented as a temporary Corporate Income Tax surcharge. It should be noted in this regard that banking groups in Spain are already taxed at a higher rate than other corporate taxpayers (30% instead of the general 25% rate).

If it is structured as Spanish Corporate Income Tax, this will have important implications. For example, non-Spanish banking groups with a presence in Spain should consider whether the form of tax will allow it to be credited against local taxes under the relevant bilateral tax treaties.
Other options potentially being considered could include a bank deposits levy or other forms of indirect taxation, which would create different technical issues for consideration.

Also, material uncertainty has been created as regards the range of bank groups with presence in Spain that may be impacted by the measure. In this regard, even the subsequent brief clarification made by the Minister of Finance that it will be limited to groups with annual turnover over €1bn, still raises the question whether this threshold refers only to the Spanish business, or a global turnover threshold and the date at which this threshold will be applied.

It is clearly too early to tell what the actual implications for both Spanish and foreign banking groups with a presence in Spain might be should this political announcement finally become a reality. For the moment, all potentially impacted businesses should be carefully monitoring this very material development. Hopefully, the Spanish government will provide further clarity on the matter as soon as possible.