The European Commission has decided to refer Spain to the Court of Justice over its refusal to alter its legislation on capital gains tax.
Under Spanish legislation, shares of companies not established in Spain are subject to a less favourable tax regime than shares of Spanish companies.
In a statement issued this morning, the EU Commissionn said it considered the arrangements in Spain contrary to the principles of freedom to provide services and free movement of capital.
Spain has not amended its legislation despite receiving a formal request from the Commission to do so in March.
Under Spanish legislation applicable to shares bought before 31st December, 1994, capital gains on shares of companies quoted in the Spanish financial markets benefit from a 25 per cent reduction in the tax rate. The equivalent reduction for shares of companies quoted in financial markets other than Spanish is only 14.28 per cent.
In addition, to qualify for the reduced rate of tax, non-Spanish shares have to have been held for a minimum of eight years, whereas it is only five years for Spanish shares.
The Commission said the Spanish legislation deters investors from taking shares in non-Spanish companies and that non-Spanish companies are likely to encounter more difficulties than Spanish ones in obtaining capital on the Spanish market.