SPAIN - European property industry body EPRA has hit out at Spanish tax reforms it says will undermine its struggling domestic real estate market.
The measures adopted last month as part of a "stability" budget include new restrictions on interest deductions for tax purposes - a move EPRA claims will discourage overseas investment into commercial and residential real estate.
This is not the first time Spanish REITs have faced criticism from EPRA.
When Spain first introduced the SOCIMI (REIT) structure in 2009, the body said it was so far from the European model it did not deserve the 'REIT' label.
Spanish REITs carry an 18% flat rate for qualifying net income, payable by the REIT itself, rather than as a tax on investors' dividend.
Gareth Lewis, EPRA finance director, said: "As seems to be the case in other countries introducing REITS, Spain is paranoid about the tax implications.
"Instead of taking a best-in-class model, they hand it over to the tax departments, where tax professionals are too concerned about balancing the books from their own perspective. The tax implications override the investment benefits.
"What they don't see is the one-off tax benefit of a REIT conversion charge and the regular payments from withholding taxes on dividends thereafter."
Even if Spain had introduced the best-in-class REIT regime, Lewis acknowledged that it lacked a fully functioning property market.
"But when the conditions are right, they shouldn't take any chances," he said.
"It isn't particularly challenging from a regulatory point of view. I'm not saying it's the answer to all Spain's economic problems, but it's a relatively simple regime, and it could result in attractive tax receipts."
In the meantime, Lewis ruled out a pan-European REIT regime based on the US model broadly adopted by France and the UK.
"In theory, yes; in practice, no," he said. "If you could click your fingers and get a Europe-wide REIT regime, it would be useful - but it isn't as simple as that.
"All the European Commission needs to do is bless the structure. It wouldn't take new legislation. One reason why the European market is at a disadvantage is because it's fragmented, but it shouldn't be difficult to get a less fragmented market."
In the meantime, asked whether he was optimistic the Spanish government would listen over reforming its three-year-old REIT regime, he said: "We never give up hope."