The Diplomat
The agreement between Spain and China to eliminate double taxation in relation to income taxes and to prevent tax avoidance and evasion, which was signed in November 2018 on the occasion of the State visit of the President of the People’s Republic of China, Xi Jinping, will enter into force next May 2.
The current agreement between Spain and China on this matter was signed in Beijing on November 22, 1990 and entered into force on May 20, 1992. In order to adapt the bilateral tax framework to the present economic environment, delegations from both countries held in 2015 and 2018 two rounds of talks in Beijing aimed at drafting a new text. Finally, and after authorization by the Council of Ministers on November 23, 2018, the new agreement was signed in Madrid on November 28 of the same year, by the Minister of Finance, María Jesús Montero, and the Chinese State Councilor and Minister of Foreign Affairs, Wang Yi. The text was submitted to Parliament in June 2020, authorized by both Chambers last October and published in the Official State Gazette (BOE) on March 30.
This agreement applies to income taxes payable by each of the States, regardless of the system used to levy them. On the Spanish side, the new agreement responds in particular to the interest in reviewing the treatment of the so-called passive income -dividends, interest and royalties- and capital gains, updating the provisions relating to the elimination of double taxation and the exchange of information, and incorporating into the text clauses that avoid the generation of opportunities for non-taxation or reduced taxation through tax evasion or avoidance.
The publication of the agreement, which will enter into force on May 2, coincides with a moment of high tension between China and the European Union after the EU Foreign Affairs Council resorted on March 22 to its Global Sanctions Regime for human rights violations to act against several Chinese officials involved in arbitrary mass arrests of Uighurs in the Xinjiang region of China.
These are the first sanctions against China since 1989, when the then European Community banned arms exports to the Asian giant due to the Tiananmen massacre. Xi Jinping’s government has reacted strongly against these sanctions, which it described as “serious interference in China’s internal affairs”, with the adoption of similar measures against a dozen European citizens, including five MEPs, three national MPs and two academics, and against four entities.
The Ministry of Foreign Affairs met last Wednesday with the Chinese ambassador in Madrid, Wu Haitao, to convey Spain’s “firm rejection” of the “disproportionate” measures adopted by Beijing. The Chinese representative responded that the European restrictions are based on “lies and misinformation about Xinjiang, ignore and distort the facts and brutally interfere in China’s internal affairs”.
