As austerity bites for the poor, Spain’s super rich get richer
3:05 pm - October 15th 2012
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contribution by Tom Gill
While the majority are getting poorer, Spain’s super-rich are getting richer, new figures suggest.
The country’s National Statistics Institute has found that some mutual investment funds, or SICAVs – where many of the rich place a good deal of their money – have seen profits rise by up to 50%.
Essentially SICAVs are a vehicle for the elite to avoid paying their dues to society.
There are similar schemes facilitating legal tax dodging by the rich in other European countries, but in Spain the SICAV, a public limited company whose object is to ‘invest in financial assets’, attracts a tax rate of just 1%. That compares to corporate taxation of 30% for large enterprises and 25% for small and medium size firms. And a 25-30% rate on the incomes of most Spaniards.
Spanish SICAVs are currently managing assets of about €23 billion, an overall fall of 8.3% in the past two years but this hides the fact that the five largest funds have grown substantially.
The largest is Morinvest, in which businesswoman Alicia Koplowitz (net worth of €1.6 billion according to Forbes), has some of her fortune. At the end of June 2010, Morinvest had assets of €440 million, which at the end of June this year had risen to €511 million.
All this good news for Spain’s 1%. But it couldn’t contrast more sharply with the story for the average man on the street as prime minister Mariano Rajoy serves up ever more indigestible austerity medicine and unemployment, already the highest in Europe, continues to rise.
Some 27% of the Spanish population are now living in poverty and household disposable income fell 3.2% in the second quarter of this year. More than a third of workers barely earn the minimum wage.
This picture of a growing gulf between the haves and have-nots is confirmed by fresh reports that Spain’s historically wide inequality of wealth has become a chasm, unparalleled anywhere in Europe.
The rich in Spain, as elsewhere, are having an excellent crisis, it seems. And the rest of the population are paying for it. No wonder the rebellion on the streets just won’t stop.
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Tom Gill is a London-based writer who blogs at www.revolting-europe.com on European affairs from a radical left perspective.
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Reader comments
Yawn…Money made in SICAVs are taxed at normal income and capital gains tax rates on the way out of the fund, even if the holding company itself has a very low tax rates.
So not a vehicle for avoiding “paying their dues to society.” Please try some accurate reporting at some point.
And EUR23bn of assets is tiny – the size of assets under management in the Spanish pension industry dwarfs that amount.
@1
SICAV only needs to pay 1% corporate income tax. In theory it should be managed like a mutual fund but in practice it usually remains a muppet of the investor or family owning it. The “rules” for qualifying as a SICAV are pretty much a joke (other than needing at least 2.4 million in capital), and the 100 investor minimum limit is easily surpassed by having friendly 99 straw investors owning some extremely small faction of the fund. In addition, since the primary purpose of this fund is to be a tax avoidance vehicle, the fact that it is not actually audited by the tax office (only by the toothless CNMV, which limits the authority of the tax office to investigate) means that even these loose rules are probably not followed in practice.
Is there anything otiose rent seekers won’t lie about?
@ 2 MoCO
You are correct there, but unless I am very much mistaken you can’t get your money *out* of the SICAV without paying normal cap gains or income taxes on it, much like most investment vehicles in the UK.
So it’s a pretty good vehicle (and indeed is treated very similarly in tax terms) for family trust style or pension type investment, as you don’t pay tax for the duration of the investment *as long as it remains untouchable in the SICAV*.
That’s the intention. This crisis has been manipulated to dissolve social democracy wherever it exists and replace it with a ruthless adherence to the priorities of the free market.
You do know that UK investment trusts are companies whose object is to invest in financial assets, and which pay little or no tax themselves, don’t you?
The income tax on dividends and (if any) capital gains tax is paid by the shareholders.
@6. cjcj: “You do know that UK investment trusts are companies whose object is to invest in financial assets, and which pay little or no tax themselves, don’t you?
The income tax on dividends and (if any) capital gains tax is paid by the shareholders.”
I could define myself as 100% ignorant. I am a pension fund holder in a company scheme. Perhaps, contributing to an LC FAQ, cjcj or others might explain how tax has or will be paid.
@ Charlieman
Your pension investment is tax free as you contribute to your pension. i.e. your contribution is taken off your gross salary before tax is calculated on the remainder of your salary.
Once you start drawing your pension it becomes taxable as if it were normal income.
For most other collective investments (mutuals, trusts etc) the trust itself is not taxed, or if it is at a very low rate. Primarily because the money going into the investment has already been taxed, as it has been earnt somewhere. Whilst in the trust that money attracts little or no tax (unless you choose to declare it).
However, when you try and access that money it is liable for taxation, either via income or capital gains, and the full amount is due, net of any tax paid previously.
It basically means you can avoid paying tax on the money for a time, you just can’t actually get at it without paying the tax. So i think most sensible people would agree that nothing wrong is happening here.
I’m curious – am I an evil tax dodger because I have an ISA?
@ Dunc
Nope, not at all. It’s a government legislated tax break, to encourage people to save. You are legally avoiding paying tax, not evading.
Though Richard Murphy and co would probably call you a tax dodger of the most fould sort, given their intentional blurring (as well as simple lack of understanding) of the lines between avoidance (legal) and evasion (illegal).
Yes, that was rather the point I was making… It was a rhetorical question.
Which is not to say that there isn’t legitimate scope for looking at shutting down some current tax avoidance loopholes.
Tyler has pretty much nailed this one already, and I would only add that as SICAVs are open-ended funds like units trusts or OEICs here in the UK – that is, they accept new contributions from anyone wishing to invest – the fact that Morinvest’s assets grew from 440 million euros to 511 million euros between June 2010 and June 2012 could well have been a result of new money rather than investment performance. It’s perfectly possible for a SICAV to lose money for its investors yet still increase its assets.
Reactions: Twitter, blogs
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Enemy of the State
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kapitao
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Shame Of Ireland
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Jose Cabanas
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cutchswife
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pirate_larry
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codhead99
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Hermes Trismegistus
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Spain’s super-rich are having a good crisis « Revolting Europe
[…] get richer. Fresh evidence of a widening gap between the one percent and the rest. Read my piece on Liberal Conspiracy blog Share […]
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OccupyBayAreaUnited
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PressTV: One out of five living in Poverty in Spain: INE report | 2012: What's the 'real' truth?
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