The Ministry of Finance recognizes from the inside that the favorable differential of the 80% for the Canary Islands Regarding the rest of Spain, it was the criterion used for years to calculate the caps on deductions for audiovisual and film productions made in the Islands, a situation that the central government unilaterally changed in 2020. This is reflected in an internal document of the department directed by María Jesús Montero to which DIARIO DE AVISOS has had access. And it is just what the political groups of the Parliament of the Canary Islands argue, where today a report will be voted, probably unanimously, an unfavorable report to the reform of the REF that is included in the Draft Law on prevention and fight against tax fraud that it is debated in the Cortes, since it does not recover that differential of 80%.
The Ministry document admits that the limits to this type of deduction in the Canary Islands established in the reforms of 2014 and 2018 were set at 5.4 million to increase by 80% the current limit in Spain of three million then set by the Law of the Corporation tax. Although it is stated that there is no provision in the regulations that protects the obligation to establish certain quantitative ceilings, it is recognized that there was behind a finalist approach, an orientation in the application of the REF that was intended to maintain the specificity of the island jurisdiction.
Precisely, the unfavorable report that Parliament is going to vote on today recalls that the objective of the REF is “to promote the economic and social expansion of the Canary Islands and to compensate for the difficulties arising from its condition as an outermost region.” And it affirms that, in its elaboration, “the purpose of the legislator was to increase tax benefits in all its aspects, and this must be expressly recognized in the Law.”
In 2020, the economic impact of COVID eliminated that favorable differential of 80% for the Canary Islands: aid to the cultural sector established at the state level in royal decrees 17/2020 and 34/2020 increased the limits on deductions to 10 million euros. euros in Spain, but they left the limit of the Canary Islands at 5.4. The Ministry document recognizes the loss of competitive advantages that this meant for the Islands. And it affirms that to restore that advantage of 80% of the differential, it is necessary to reform Additional Provision XIV of the REF, which is where these amounts are specified.
That is precisely what the central government did last week via decree-law, since fiscal terms were running out and the situation was urgent for the audiovisual sector that operates in the Islands. And this is what will foreseeably be finalized in the near future with the reform of the REF that is being carried out through the Draft Law on prevention and anti-fraud measures. But the competitive advantages of the Canary Islands have not been restored, as the ceiling has risen in the last decree-law to 12.4 million euros compared to 10 in the rest of the State, which is only 24% more.
Officially, from the Ministry they simply reiterate to DIARIO DE AVISOS that there is no obligation to raise the differential to 80%, and affirm that the changes introduced last week represent an improvement in the competitive advantages for the Islands. But they do not enter to make political evaluations about the situation that has been created.
“It is legal, but it betrays the 30-year percentage differential of the REF,” Orlando Luján, economist, tax advisor and expert in the REF, assured this newspaper, where he warned about the insufficient “shielding” that the island jurisdiction has, which is a ordinary law that can be modified by another ordinary law.
As Luján recalled, the greatest protection that the REF has in the face of unilateral decisions of the State is given by Article 167 of the Statute of Autonomy: if the 2/3 parts of Parliament support an unfavorable report on any change in the REF, the Canary Islands-State Bilateral Commission to try to resolve the conflict within two months. After that time, if an agreement is not reached, the process continues regardless of the community. But of course, the conflict can also end up entrenched. According to Luján “these deductions do not imply a burden for the State. In fact, the sum of aid to the audiovisual sector cannot exceed 50 million euros, because that is how it is in the regulations on the accumulation limits of State aid ”.
It remains to be seen if the Ministry of Finance understands the reasons for the Canary Islands. For now, we only know that the audiovisual sector is one of the few successful experiences of economic diversification in the Islands in recent years. And that we are not in excess after the loss of 20 points of Canarian GDP last year.