The EU’s finance ministers have backed the European Commission (EC) recommendations for Spain on Thursday, in which they consider that there is room to expand the VAT base and tax consumption, among other taxes, on the same day where the government will approve the tax reform.

In the recommendations, presented on June 2 by the EC, the European partners say that Spain should tax consumption, the deterioration of the environment (fuels for example) or real estate (IBI).

They also recommend lowering social security contributions and eliminating deductions in corporate tax and personal income tax, community sources said.

It also recommends lowering social contributions and deductions in corporate tax and income tax In the EC working document sent to the Council of EU Economy Ministers, the Ecofin, the experts of the Commission make it clear that “there is a margin to raise taxes on consumption and improve its efficiency by expanding the VAT base “.

An important part of the recommendations of the community partners focuses on the problems of the labor market in Spain.

In this section, they recommend the Government to promote new measures to reduce segmentation in favor of quality and sustainability of employment, for example, by “reducing the number of types of contracts” and guaranteeing “balanced access” to rights in case of cessation of the employment relationship.

Wages and employment

In addition, Spain must ensure that “the evolution of real wages is consistent with the objective of job creation.”

The EU also believes that Spain could “reinforce the job search requirements” to receive unemployment benefits.

On the other hand, he argues that Spain should reinforce the budgetary strategy from 2014 and specify for it fully the adjustments it intends to apply in 2015 and the years after to correct the excessive deficit in 2016 and leave it at 2.8% of GDP.

After achieving this objective, Spain should apply a structural adjustment towards the medium-term objective (a balanced budget in 2017) of at least 0.5% each year to place debt below 60% of GDP.

The EU also calls for a “systematic” reduction of expenditure in the Administration

The EU also recommends that the Government carry out a “systematic reduction of expenditure at all levels of the Administration” by February 2015 and reminds it that the correction of budgetary imbalances requires the credible implementation of ambitious structural reforms to increase capacity. of adjustment and boost growth and employment. In addition, Spain has to “take measures to prevent taxation from hindering the harmonious functioning of the Spanish internal market” and “intensify the fight against tax evasion”.

On the other hand, the partners of Spain in the EU also affirm in their recommendations that the Government should guarantee the effective elimination of the deficit of the electricity sector from 2014 after the reform of last year, taking if necessary, additional structural measures.

They also believe that the Government should address the problem of insolvent toll roads by minimizing costs for the State and creating, before the end of 2014, an independent observatory to evaluate large future infrastructure projects.

Government tax reform

Precisely, the Council of Ministers approves this Friday the tax reform, in which it plans to ignore the EU measures, since it has announced a reduction of income tax since 2015 without explaining how it will compensate the loss of income, and has discarded raise the VAT or reduce the quotes.

The Minister of Labor, Fátima Báñez, also rejects another labor reform. The recommendations for Spain, as well as those addressed to the rest of the Member States, will nevertheless be ratified by the Heads of State and Government at the summit of June 26 and 27.

Objective: that children under 25 who complete their education, find a job, internship or additional training in four months In terms of the labor market, Spain, as highlighted by the recommendations, should “promote new measures to reduce the segmentation of the labor market in the interests of quality and sustainability of employment, in particular by reducing the number of types of contracts and guaranteeing a balanced access to rights in the event of dismissal “, as well as” reinforcing the job search requirements for the receipt of benefits by unemployment”.

“Segmentation continues to be a major problem in the Spanish labor market, there are still numerous types of contracts and the difference between the costs of dismissing temporary and indefinite contracts still figure, even after the reform (labor in 2012) among the highest levels of the EU “, warns the text.

The Government of Mariano Rajoy has to “accelerate the modernization of public employment services” and “ensure the effective implementation, before the end of 2014, of cooperation initiatives between the public and private sectors in placement services.”

And launch the youth guarantee to provide unemployed children under 25 years of age or who complete their education with a job, internship or additional training within a period of four months.

Risks of overestimation in the forecasts for the next three years

The Ecofin calls on the Government of Mariano Rajoy “to carry out, before February 2015, a systematic review of spending at all levels of the Administration to help improve the efficiency and quality of public spending.”

Another proposal is to rationalize pharmaceutical spending Specifically, it should “continue to increase the efficiency of the healthcare sector, especially by increasing the rationalization of pharmaceutical spending, particularly in hospitals.” For the ministers, the budgetary strategy of Spain in the coming years “only fits in part to the requirements of the Stability Pact”.

Government growth forecasts are plausible for 2014 (1.2%), but present “overestimation risks” for 2015 (1.8%) and are “somewhat optimistic” for 2016 and 2017. “So, there are also risks of overestimation in relation to the paths of adjustment of the deficit and debt “, warn the conclusions.

The Ecofin calls on the Government to apply “in a rigorous and transparent manner at all levels of the administration the preventive, corrective and coercive measures provided for in the Budget Stability Law, including those related to the elimination of debts contracted with commercial entities.”

Independent observatories for future infrastructure projects
The EU also demands that the Spanish authorities “guarantee the effective elimination of the electricity sector deficit as of 2014, taking, where appropriate, the additional structural measures necessary”.

The organization will also promote the fight against the underground economy. It also recommends “tackling the problem of insolvent toll roads in a way that minimizes costs for the State”, as well as “establishing, before the end of 2014, an independent observatory that contributes to the evaluation of large future infrastructure projects. ”

Spain should implement the reform of public administrations, as well as strengthen the control mechanisms and increase the transparency of administrative decisions, particularly at the local and regional level, “as well as” complete and carefully monitor the measures underway to combat the submerged economy and undeclared work “.

Many professions will require collegiate to be able to exercise
Another priority for the EU is “to approve an ambitious reform of professional services and professional associations before the end of 2014, defining the professions that require enrollment in a professional association, as well as the rules of transparency and accountability of the professional organizations, liberalizing unjustifiably reserved activities and preserving the market unit in the access to professional services and their exercise in Spain “.

The Government has to take measures to “reduce the time, cost and number of procedures necessary to establish and operate a company” and “correct unjustified restrictions on the establishment of large commercial areas, in particular by reviewing the provisions regional urbanism “.

Against tax avoidance by multinationals

The ministers of Economy of the 28 have also reached on Friday a political agreement to tighten the tax rules of the EU with the aim of preventing multinationals from evading the tax payment by resorting to tax engineering.

The compromise was possible after Malta had lifted the reservation it had on the text since the rules on taxation require the unanimous support of the Member States. The countries now have until December 31, 2015, to incorporate the changes into their respective national legislation.

The objective of this reform of the so-called parent-subsidiary directive is to cover a gap that currently allows the groups of companies to take advantage of the asymmetries between the national fiscal rules to escape the tax on certain types of benefits distributed within the group.

Currently, payments between the subsidiary and the parent company of a multinational company are not taxed. The tightening of this rule will allow the Member States, according to Brussels, to avoid losing tax revenues from groups of companies and will contribute to establishing fairer conditions of competition.

The current directive obliges the Member States to grant to the parent company of a company a tax exemption on dividends received from subsidiaries established in the other Member States in order to avoid double taxation. However, in some cases, the countries where the subsidiaries are established consider these payments as the reimbursement of tax-deductible loans. The result is, according to Brussels, that payments between the subsidiary and the parent are not taxed anywhere.

With the reform approved by Ecofin, if a payment made as a hybrid credit is tax deductible in the subsidiary’s Member State, it must be taxed in the country of the parent company. With this measure, multinationals will no longer be able to plan their intra-group payments to benefit from this double non-taxation.

The community executive had also proposed introducing a common anti-abuse rule in the directive. This will allow the Member States, according to Brussels, to ignore the artificial structures used to evade taxes and tax the real economic substance. However, this clause has been left out of the reform for the moment because there is no consensus in the Ecofin.