Friday, September 19, 2014

Circular referendum logic

So why not have a referendum in Catalunya like in Scotland? The central government’s argument is that there can’t be a referendum because it would be illegal. Why would it be illegal? Because the central government won’t approve it, and the constitution requires their sign-off.

Any why won’t the central government sign-off? Because it says the referendum is illegal… etc

Of course, the Catalans are saying they aren’t having a referendum, they are having a “Consulta”, which according to their own Statut, they are allowed to do (according to article 122):

The Generalitat has exclusive power to establish the legal framework, modalities, procedures, implementation and the call by the Government itself or by local authorities, within the scope of its powers, surveys, public hearings, forums participation and any other instrument of popular consultation, except as provided in Article 149.1.32 of the Constitution.

The constitution says:

The State has exclusive jurisdiction over the authorization to call for popular consultations by route of referendum.

Still, Rajoy shouldn’t act as if he is obligated by law to stop the referendum consultation, he’s just stopping it because he doesn’t want it to happen.

Thursday, September 18, 2014

My Scottish Independence vote prediction

Here’s my prediction, so I call look silly once the results are in.

My prediction is that No will win. Here’s why:

  • Young people want independence and old people don’t. Combine that with the fact that old people vote and young people don’t, the cause is probably doomed. Every time I hear about how this and that poll isn’t accurate because they don’t reach “mobile phone only” voters, the results end up being that the mobile phone voters get distracted and forget to vote.
  • A yes for independence would be a victory for democracy. Remember that this is the EU and we don’t want any of that pesky democracy stuff. Especially referendums on important questions.
  • If the result is so close, do you think that the UK government doesn’t have a plan to change a small number of votes? Wouldn’t that be said if a couple strategically place mobile phone towers started being unreliable and all those young people who can’t navigate without their phone can’t find the polling booth.
  • The bookies are only giving 4:1 odds for a yes win.
  • Having the vote during the week means that retired people have an advantage over younger working people.

I think it would be really cool if the yes side would win, just to stick it to the EU and show that people can actually vote and make a difference. Of course, that is not the world we live in.

Sunday, September 7, 2014

Podemos: OMG ponytails!

Funny to read El Mundo freaking out about the growth in support of Podemos. The picture they choose:

El líder de Podemos, Pablo Iglesias, en una conferencia en el...

I suppose they are trying to say:

  1. He’s got a ponytail. Damn dirty hippy.
  2. He’s just preening in front of the press.

On the substance, the main criticism is that they wouldn’t be able to pay for all the promises they are making. Unlike, say the PP, for example, who has basically broken every single campaign promise they made. But I guess that’s ok, because they’re all a bunch of lairs anyway.

Tuesday, September 2, 2014

Spanish finance minister Montoro threatens to use the dreaded 720 form against Jordi Pujol

Since 2013, residents in Spain with assets above a certain threshold are required to file the modulo 720 form every year detailing assets outside of Spain. The penalties for non-compliance are severe, and non-declared assets are taxed as an “unjustified capital gain”, to which additional penalties and interest apply.

Jordi Pujol’s 30 year undeclared fortune outside of Spain seems like a perfect test case for this new law, and it will be interesting to see if the prosecutors go after him using this route. If not, it would make people question the value of filing the 720 form. There are some possible constitutional issues with the law (invasion of privacy, presumption of guilt, etc), so it will be a good test to see how much the Spanish government really believes in the enforceability of this law.

Tuesday, August 12, 2014

Simplifying your US investment taxation for Americans living in Spain

If you are thinking of living in Spain and have an investment account that you want to leave in the US, you may want to think about simplifying your taxation.
If you hold your investments in your own name, you will need to recalculate your taxes once for the US, then do the same thing again for Spain, apply the US-Spain tax treaty, pay some amount in Spain and some in the US. In addition, for some assets there may be differences in how they are treated in terms of recognition of gains, so you may end up with double taxation.
One alternative is to hold your US assets in a member-managed US-based LLC (Limited Liability Company).For US tax purposes, LLCs pass-through their earnings to the owners, so from a US perspective, there’s no change to your taxation. Since you are a US citizen, you need to declare and pay taxes on this income.
From the Spanish side, you need to make sure that you avoid the Controlled Foreign Corporation rules. A foreign company owned by a Spanish resident is generally exempt (see Article 91) if that company is:
  1. not based in fiscal paradise, and
  2. the company pays (including taxes paid on passed-through earnings) at least 75% of what it would pay if it declared taxes as a resident of Spain.
Since US marginal rates for passive income are generally higher than in Spain, it’s pretty standard to easy to meet for US citizens. If you were not a US citizen you wouldn’t be able to do this since you would not need to pay any US taxes on pass-though earnings, and thus would fail the 75% test.
Although this normally won’t save you any taxes, it could save you a bunch of aggravation. If you want to be fancy, you can fund the LLC though a loan instead of via equity to reduce the book value of your acquisition.

Sunday, July 13, 2014

Real estate offer agreements in Spain

If you want to make an official offer on a house or apartment in Spain, in some cases the real estate agent will ask you to put down a deposit, together with signing an agreement that if the seller accepts your offer, you will lose your deposit if you back out.

Problem is these contracts tend to be very badly written and can lead to real problems if things don’t work out. Especially important is who is going to return your money if things don’t work out.

The important points of the contract are what happens in each of these cases:

  • If the seller does not accept the offer in writing within a short time period (48 hours), the real estate agent should return your deposit immediately.
  • If the seller accepts your offer, but then backs out, the real estate agent should to return double your deposit. Since the offer contract is only signed by the real estate agent and you, the agent can’t really legally commit the seller to pay anything, since the seller isn’t signing the contract. (The real estate agent might have a contract with the seller, but that’s not your problem)
  • Will this fee will be credited towards the purchase price as part of the agreement? Sometimes it is assumed that this is a commission for the real estate agent, so be careful.

Alternatively, you could just look for a deal where you deal directly with the seller. In that case, don’t sign any agreement except the final one at the notary. In the past, people usually signed “arras” pre-sale agreements, but these can also be minefields (more on that later), so avoid them if at all possible.

Saturday, July 12, 2014

Spain screws long term property owners

Something that has shocked me about the recent tax changes has been the high degree of retroactivity, taxing people for past behavior that they can no longer change. Normally the idea is that taxation should influence future behavior, and changing the tax liability for decisions already made is counter-productive and arbitrary.

The latest change in the capital gains taxation is significant to anyone considering buying or selling property in Spain. Among the recent raft of tax changes, there is a huge change in the way long term capital gains are treated. In the (now) past, there was a reduction for inflation, with an additional reduction if the property was bought before 1994.

The new law does away with this and applies a very simple non-inflation corrected capital gains calculation. Going forward, it doesn’t really matter that much, since the current inflation rate is low enough not to matter, and the lower overall tax rate evens out everything.

However, if you were a sucker (ie have now been retroactively changed into a sucker) to have bought something in the 1980s and have held onto it, you are going to pay as if the 30%+ inflation during the 1980s never happened if you sell your property after 2014.

CincoDias has a great calculator that will show the difference, which can be huge. For example, if the seller bought an apartment in 1980 for 8 million pesetas (about 200.000 euros inflation adjusted, but 48.000 euros non-inflation adjusted), and sold it today for 300,000 euros, the seller ends up paying 44.000 euros extra in capital gains if they sell it after 2014!

So if a place is listed for 300.000 euros and the end of year is coming up, a long term owner might be willing to sell it for 40.000 under list price rather than waiting for the new year to roll around.

Definitely something to keep in mind if you are thinking of making on offer.