Experts fear a leakage of capital from Spanish SICAVS

The Government's decision to impair the fortunes take money from their investment companies (SICAV) virtually untaxed may cause rapid capital flight from these instruments, according to industry sources, who are awaiting to know the detail of Executive's proposal. In any case, the same sources point out that hundreds of millions of euros have already left the legal form Sicav using the hole that the Treasury intends to close now.

The Government now admits that those firms had privileges for the rich
Finance is not clear yet how long will the new regulations in force

The outflow of funds can occur through a wave of reductions in capital before the new rule comes into force, as CRMs. Only prevent the leakage of money if you apply the new rule immediately in the parliamentary process or retroactively, which would be legally questionable, it would be to amend the Income Tax of Individuals (income tax) of 2010 Budget 2011. Treasury sources yesterday declined to clarify this issue and referred to the detail of the proposal to be released on Thursday, when the Deputy Prime Minister, Elena Salgado, delivered the Budget Bill in Congress.

The official government discourse has traditionally been the Sicav posed no privilege for the great fortunes in comparison to mutual funds open to small savers. Both groups have a rate of 1% in income tax and its shares are taxed at 19% or 21% when they get refunds or dividends for its participation in those institutions or sold. However, COUNTRY unveiled in October 2009 that in reality the vast fortunes they had found the way to withdraw their money from Sicav hardly taxed, and in a completely legal.

When benefits accrue from reserves that have taxed at the rate of 1%, the Sicav generate shareholder return through the return of capital or share premium. These returns are not taxed when they occur, and such returns are simply an adjustment in the purchase price of the shares is taken into account for purposes of determining the existence of future profits or loss of property if such actions were sold.

In some cases, the Sicav came to make capital increases against reserves (ie, benefits from previous years) and then proceeded to reduce the capital they had just expanded to deliver and the money to shareholders, free temporary taxes.

This is because the Sicav are companies (investment funds are not) and the contribution refund mechanism used by the Sicav is common to all types of companies. Sources of Finance acknowledge that if the shares are not sold in a long period of time, the taxation of shareholder income tax is deferred indefinitely, so that, in practice, the cumulative tax partner and society is almost nonexistent.

In other societies, the return of contributions is a result of the accumulation of reserves has already been taxed at 30%, as a rule, not 1% as in the case of the Sicav.

After refusing last year to change the regime of the Sicav, the Government has now assumed such thesis and supports that are producing outputs of the Sicav funds for that fiscal hole. Treasury now admits that this formula of deferred tax breaks in the Sicav tax neutrality between different forms of investment that can be used by taxpayers, it is not possible to use in cases of direct investment or through investment funds.

Sources of Finance explained that the measure antidiferimiento be structured as an amendment to the Income Tax Act subject to tax as investment income, refunds of contributions to members (also when using premium share for the same purpose .) In the corporate income tax provides an equivalent measure (for the case of corporate shareholders of Sicav). The measure also extends to those who are partakers of its equivalent outside of Spain.

Managers of private banking, investment and tax advisors believe that the early announcement of the rule change may cause a wave of capital reductions in the Sicav until later this year if the Government did not take preventive measures. Such societies are very sensitive to any policy change and that's partly why the Government had so far resisted change its regime. Now, with the marginal rate rise at higher incomes, has decided to halt the practice became more in evidence the tax advantages enjoyed by the wealthy. However, in the Treasury there were those who were reluctant even to that modification.

Investment companies that have a greater incentive to carry out such capital reductions are precisely those who accumulate more capital gains.

Beyond the cash outflows that may occur in the coming months, the fact is that the legal loophole which seeks to cover the Government has already been used extensively by the Sicav in recent years, especially since it began to be planted uncertainty about the continuity of its tax system. In the past two years, tens of Sicav have reduced their capital by hundreds of millions, according to the records of the National Securities Market, whose statistics do not provide an overall computation of these operations. In Spain there are about 3,200 investment companies with variable capital (SICAV) with assets of about 26,500 million euros, according to data from the first semester.

The Government has not addressed the other point that is controversial in this figure, the fact that despite presenting itself as a collective investment scheme in practice are often the personal investment vehicle of the very wealthy. These are accompanied by testimonials shareholders (called mariachis, in their jargon) that only appear to fulfill the legal requirements on the number of partners