Argentina to levy wealth tax – with higher amounts for expats

In today’s podcast I discuss some of the biggest news stories of the last few days, including the proposed new Argentina wealth tax, which is also an expat tax as well in all but name, and similar trends in Canada and Spain.

Will more countries follow suit and bring in wealth and expat taxes?

You can read about the potential for Canadian expat taxes at the bottom of this article.

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For your convenience, and to give credit to the original writers, I have included links to the articles I referred to and copied them below.

1. BBC – Covid: Argentina passes tax on wealthy to pay for virus measures

Argentina has passed a new tax on its wealthiest people to pay for medical supplies and relief measures amid the ongoing coronavirus pandemic.

Senators passed the one-off levy – dubbed the “millionaire’s tax” – by 42 votes to 26 on Friday.

Those with assets worth more than 200 million pesos ($2.5m; £1.8m) – some 12,000 people – will have to pay.

Argentina has recorded close to 1.5 million infections and almost 40,000 deaths from the coronavirus. 

It has been hit hard by the pandemic, becoming the fifth country worldwide to report one million confirmed cases in October despite only having a population of about 45 million people – making it the smallest nation at the time to surpass that figure.

Lockdown measures have further dented an economy struggling with unemployment, high poverty levels and massive government debt. Argentina has been in recession since 2018. 

One of the law’s authors said it would only affect about 0.8% of taxpayers. Those affected will pay a progressive rate of up to 3.5% on wealth in Argentina and up to 5.25% on that outside the country. 

AFP news agency reports that of the money raised, 20% will go to medical supplies, 20% to relief for small and medium-sized businesses, 20% to scholarships for students, 15% to social developments, and the remaining 25% to natural gas ventures.

Centre-left President Alberto Fernandez’s government hopes to raise 300 billion pesos. 

But opposition groups fear it will discourage foreign investors, and that it will not be a one-time tax.

Centre-right party Juntos por el Cambio reportedly described it as “confiscatory”.

2. By Voting Against a Wealth Tax, Canada’s Politicians Have Shown Who They Really Work For

The vast majority of Canadians support a wealth tax, but 90 percent of the country’s MPs recently voted against a proposal to establish one. When push comes to shove, Canadian politicians are just as much in thrall to the rich as their US counterparts.

Canadians often like to imagine that their country, unlike the United States, is one characterized by progressive and efficient governance that is responsive to the needs of middle-class and working-class voters. But Canada’s parliament has consistently proven otherwise.

In truth, our country’s political system works very well for its wealthy citizens, but not for the vast majority of Canadians. When the chips are down, Canadian politicians prove to be just as much in thrall to big money as their US counterparts.

A clear example came on November 16 when the social democratic New Democratic Party (NDP) put forward a motion to enact an overwhelmingly popular tax on wealth and excess profits, only to have it blocked by the ruling Liberals, as well as the Conservatives and Bloc Québécois.

Polls over the past year have indicated massive support for a tax on Canada’s rich — not just from the Left, but from a majority of voters irrespective of their favorite party. Nevertheless, Canada’s parliament refuses to even contemplate such a move.

NDP leader Jagmeet Singh has long argued for a wealth tax, going back to his run for the party leadership and the 2019 election campaign. As Singh and others have noted, the Canadian tax system offers massive loopholes for the rich, wealthy, and well-connected, and explicitly privileges the money possessed by capitalists and other powerful people.

Canada only taxes half of capital gains earnings compared with the whole of income earnings, and does not have an inheritance tax. For a wealth tax to truly be effective, it must target income and wealth that only the very rich possess. This was already clear before COVID-19 and its related crises, but now — as the rich profit off the pandemic and frontline workers suffer — it is more striking than ever. Singh has rightly criticized the idea of getting back to what was previously “normal.” Those with great wealth must be first in line to finance the recovery.

It was in this spirit that the NDP proposed a wealth and excess-profits tax. This wasn’t some sort of vanguard effort from left activists, swimming against the tide of public opinion: it is already an overwhelmingly popular policy. Canadians from every single major party electorate and region support a wealth tax.

Subsequent polling has shown even greater support for taxing the rich and especially pandemic profiteers. Polling from Abacus Data suggests that a wealth tax of 1 percent on all individual assets over $20 million enjoys the support of nearly four-fifths of all Canadians, and almost two-thirds of Conservative Party voters. There’s a clear opportunity for the Canadian left to appeal to those people on a platform of basic fairness and justice.

Abacus asked Canadians if they support a temporary doubling of the current corporate tax rate on companies whose profits have risen during the pandemic. Here, too, there is decisive support, albeit somewhat lower than for the wealth tax: even 58 percent of Conservative voters want those who have profited from the crisis to pony up a bit extra.

(abacusdata.ca)

You might expect a policy with rock-solid public backing to inspire a pan-partisan consensus among Canada’s MPs. But we saw nothing of the sort. While the NDP and the Green Party did vote in favor of the motion, these parties hold less than 10 percent of parliamentary seats, despite winning nearly a quarter of the popular vote, thanks to Canada’s first-past-the-postsystem.

The three largest caucuses all went against the motion, defying the wishes of their own electorates. Along with the Liberals and Conservatives, even the nominally social democratic Bloc Québécois voted down the policy. A policy supported by nearly 80 percent of Canadians cannot muster 10 percent of the vote in the national parliament.

Handouts For the Wealthy

Any party in Canada needs the votes of working-class people if it wants to wield power, but once they have those voters in their pocket, they immediately set their interests aside when they conflict with those of the wealthy. Liberal leader Justin Trudeau, who has made the “middle class” the centerpiece of his rhetoric, voted against the wealth tax. So did Conservative leader Erin O’Toole, who is trying to reframe his party as a friend of blue-collar, private sector workers.

More broadly, if we look at polling conducted right after the 2019 election — which gave rise to the current Liberal minority government — we can see broad support for the modest social democratic policies of Jagmeet Singh and the NDP, including a wealth tax, an income-based dental care program, a universal, single-payer pharmacare plan, and the rudimentary elements of a Green New Deal. If the larger parties wanted to deliver policies that are both possible and popular, they could do so immediately. They have chosen not to, to the detriment of the majority of Canadians.

The wealth tax isn’t the first time Canada’s largest parties have prioritized the haves over the have-nots this year. A so-called “middle-class tax cut” implemented by the Liberals earlier in 2020 chiefly benefited individuals earning six-figure salaries. Singh and the NDP suggested that the tax cut be capped so that it would only apply to those making less than $90,000, with the rest of the money used to fund a dental program for an estimated four million Canadians who lack a private insurance plan.

However, the same parties that rejected the wealth tax shot the proposal down. Although the NDP’s means-tested dental care program was fairly modest in itself, the reform was still too much for Canada’s dominant parties, despite enjoying support from 76 percent of Canadians.

Tax cuts for the wealthy are combined with various forms of corporate welfare, such as the 2019 giveaway by the Liberal government to the highly profitable Loblaw grocery chain, owned by one of Canada’s wealthiest families, which received $12 million to install new fridges.

In 2017, Loblaws was found to have engaged in the long-term fixing of bread prices, overcharging the very consumers whose tax dollars subsidize their handouts. More recently, the company has increased its shareholder dividendswhile clawing back a $2-an-hour pandemic pay raise previously extended to essential workers.

Challenging the Consensus

The Canadian media, which may be even more right-wing than its American counterpart, makes it a lot harder to organize public opinion against these elite-driven economic policies.

As Linda McQuaig, a rare left-wing columnist at a Canadian newspaper, notedlast year, the idea of a wealth tax receives hardly any attention from mainstream media outlets despite all the evidence of sustained popular support: “Surely has nothing to do with the fact the media is largely owned by billionaires.” Apart from a few isolated screeds polemicizing against the tax, discussion has been confined to independent left-wing media platforms.

However, the NDP can’t be let entirely off the hook here. While Canada’s voting system and media make it harder to promote even a modest left-wing agenda, the party could still do more to improve its platform and messaging. Jagmeet Singh may have been more forceful than other recent NDP leaders in promoting expansion of public services and redistributive taxation, but his plans need to be bolder still.

As far as the wealth tax is concerned, the NDP’s proposal seems timid when compared to those of Elizabeth Warren and (especially) Bernie Sanders south of the border. The NDP’s 1 percent plan may start at $20 million, lower than either of the US ones, but it has no ramp up — not even on billionaires, whose wealth Sanders would have taxed by as much as 8 percent.

The NDP’s excess profits tax was also vaguely defined, in contrast with the specific detail offered by Sanders, Ed Markey, and Kirsten Gillibrand when they introduced a bill to tax 60 percent of the profit made by billionaire profiteers during this pandemic.

The timidity doesn’t end there: while the NDP’s membership unanimously supported free tertiary education in Canada at the 2018 party convention, the party has yet to include such a policy in its election platform, choosing instead to emphasize the elimination of student loan debt interest — not fees or principal.

Canada badly needs a bolder left-wing movement that can effectively challenge the subordination of its political class to wealthy donors and corporate behemoths. As the founding NDP leader Tommy Douglas noted long ago in his Mouseland fable, so long as the Canadian people — made of up mice — keep electing governments made up of cats, they’ll find their own interests shortchanged.

3. Spain: New tax measures to end 2020

The Spanish government has presented two bills to Congress, under which it will introduce rises in a wide range of taxes. These are the bill on Measures to Prevent and Combat Tax Fraud and the bill on the National Budget.

In brief

The Spanish government has presented two bills to Congress, under which it will introduce rises in a wide range of taxes. These are the bill on Measures to Prevent and Combat Tax Fraud and the bill on the National Budget.

Below you will find the key tax reforms included in the National Budget Bill announced on 30 October.

Unless otherwise stated, these measures will enter into force from the day after the law is published in the Official State Gazette (“BOE”), i.e. after the completion of the parliamentary process that has just begun has ended.

Personal Income Tax.

The following changes will take place from 1 January 2021:

• Earned Labour income. Taxation of employment-related income exceeding EUR 300,000 is increased by 2%, rising from 45% to 47%. However, the ultimate maximum rate will depend on each Autonomous Community. For example, in Catalonia it will be 50% and in Madrid 45.5%.
• Savings income. Taxation of savings income exceeding EUR 200,000 euros is increased by 3%, i.e., the marginal tax rate is set at 26% (previously 23%).
• Posted workers to Spain. Taxation is increased from 24% to 47% for incomes exceeding EUR 600,000 (i.e. 24% is applied up to EUR 600,000 and 47% to the rest). For income arising from dividends, interest or capital gains, tax is raised by 3% for income exceeding EUR 200,000.
• Social benefits schemes (“Pension plans”). For individual coverage, conditions are worsened by limiting taxpayers’ contributions for tax purposes to EUR 2,000 (previously EUR 8,000). However, this limit will be set at EUR 8,000, provided that the increase comes from company contributions and does not exceed 30% of the sum of net income from employment and economic activities received by the individual in the tax year.
• Objective assessment scheme. The quantitative limits in the objective assessment scheme are extended.

Wealth tax.

• A 1% increase is applied to the highest tax band rate in those Autonomous Communities that have not approved their own rates. This means that assets exceeding EUR 10,695,996.06 will be taxed at 3.5%, either in 2021, or 2020, if the law is published before 31 December.
• This provision shall remain in force indefinitely, eliminating the need to regulate any extensions.

Corporate Income Tax.

For fiscal years beginning after 1 January 2021 that have not concluded on the day after publication in the BOE,  we would like to draw your attention to the following measures:

• Exemption on dividends and income from the transfer of securities representing the equity of resident and non-resident entities in Spain.
  • The exemption is reduced by 5%, bringing it to 95%.
  • Exceptionally, this exemption shall not apply to entities whose net turnover for the immediately preceding fiscal year amounts to less than EUR 40 million and meet the following requirements: i) they are not holding companies; ii) they do not belong to a group of companies; and iii) they did not previously have direct or indirect participation of 5% or more in other entities.

In addition, in order to apply this exemption, a number of other requirements must be met with respect to the investee, namely: i) 100% of the investee must have been directly owned since its incorporation; ii) the investee must have been incorporated after 1 January 2021; and iii) the income subject to the exemption must be received within the three years immediately and subsequently to the incorporation of the distributing entity.

• The above measure is echoed in the application of other mechanisms to eliminate double taxation of dividends or shares in profit and income resulting from transfers. For example, in international economic double taxation and international tax transparency.
• Capital or equity participation with an acquisition value exceeding EUR 20 million.
  • Deductible limit for financial expenses shall be reduced since dividends or profit-sharing of these participations cannot be included in the operating profit.
  • Exemption and elimination of international double taxation on dividends or shares in profit and income resulting from the transfer of such shares is repealed.

Nevertheless, until the last fiscal year starting in 2025, applying these tax benefits is allowed, provided that such participations exceeding EUR 20 million are acquired before 1 January 2021 and meet the remaining requirements (excluding the 5% minimum percentage of ownership).

Non-Resident Income Tax.

Exempt income:

• Residents in States that belong to the European Economic Area (with which there is an effective exchange of information) are deemed comparable to residents in EU Member States in terms of eligibility for applying the exemption of interest, income from the transfer of equity capital to third parties, as well as real estate capital gains without a permanent establishment.
• Exemption from profit distribution by subsidiary companies resident in Spain to their parent companies or permanent establishments of the parent company located in the European Economic Area is amended. Specifically, a mere participation exceeding EUR 20 million not amounting to a direct or indirect participation of at least 5% is no longer considered to be a parent company.

Nevertheless, until the last fiscal year commencing in 2025, this exemption is allowed for parent companies whose holdings exceeding EUR 20 million have been acquired before 1 January 2021 and meet the remaining requirements (excluding the 5% minimum percentage of ownership).

Value Added Tax.

• VAT is raised from 10% to 21% on alcoholic drinks and so-called “sweetened drinks“, i.e. drinks containing added natural and derived sweeteners and/or sweetening additives, except for baby milk and drinks considered as food supplements for special dietary needs.
• This includes a new category of services supplied in the territory of application of VAT for non-exempt hospital or health care services, where their effective use or operation takes place in that  territory.

Other tax measures.

• Tax on Property Transfers and Stamp Duties. There is a 2% increase in tax rate for transfers and rehabilitation of titles of nobility and grandeeships.
• Tax on Insurance Premiums. The tax rate is raised from 6% to 8%.
• Interest. Delay interest for 2021 will be 3.75%, while the statutory interest is set at 3%.
• Charges. Among other developments:
  •  The fixed amount rates for the State Treasury are increased by 1%, with the exception of those introduced or updated since 1 January 2019.
  • Rates on gambling remain the same.
• Donations. 
  •  Deduction for donations on Personal Income Tax, Corporate Income Tax and Non-Resident Income Tax. The percentages and limits for the deduction are increased by 5% when donations have been made to the priority donation activities.

On the other hand, the Spanish Government has announced that the Draft Law on Measures to Prevent and Combat Tax Fraud adopted by the Council of Ministers has been presented to the Parliament for its approval.

If passed before 31 December 2020, the new measures could come to affect Personal Income Tax and Wealth Tax for this financial year 2020, although it is unlikely that these measures will be passed in time.

Valuation of unit-linked insurance and temporary or life annuities in Wealth Tax.

• Valuation of unit-linked insurance. As in the past, these will be calculated at the surrender value when the tax is accrued. The new feature is that, if the policyholder does not have the power to exercise the full surrender right on the date on which the tax accrues, the insurance will be calculated at the value of the mathematical provision on that date on the policyholder’s taxable income.
• Exception. In case the holder of the economic rights is a person other than the policyholder, the insurance will be calculated on the taxable income of the beneficiary or holder of the economic rights. It will therefore no longer be possible to argue that if the policy has no surrender value on 31 December it should not be included in the tax base.
• New valuation rule for temporary or life annuities. When these are received from a life insurance policy, they must be calculated at their surrender value at the moment the tax accrues.

Further Reading

Will Canada bring in a US style expat tax?

Canadian Expat and Nomad Taxes – Changes Coming?