Bolsas y Mercados Españoles (BME) has delivered a report to the Ministry of the Economy and Finance proposing a series of fiscal policy measures devised to provide incentives for investment in small- and mid-capitalisation companies that list shares and raise financing through rights issues or public share offerings on the Alternative Equity Market (MAB for its initials in Spanish).
The BME’s report was also delivered to the regional economic authorities of Catalonia, Galicia, Madrid and Valencia, all of which have had special tax policies transferred to them by the Central Government. Contacts with other regional authorities also have been made.
BME’s proposal for supporting small- and mid-sized enterprises (SMEs) and the Spanish business community in general stems from a conviction that tax breaks will contribute to the initial take-off and subsequent development of the MAB, a market that allows this group of companies to raise efficient funding for growth. These measures also will contribute to the growth of family businesses, encourage the launch of new projects and broaden the shareholder structure of these companies.
Support for such investments is especially appropriate in the current economic environment: SMEs, which accounts for 80% of employment, 65% of GDP and 99% of Spanish companies, may encounter greater difficulties than larger corporations in accessing credit, and, as a result, may be more vulnerable to the negative effects of the economic crisis.
The report offers a realistic and prudent approach tailored to the characteristics of the Spanish tax system. It emphasises that the tax breaks recommended for the MAB would have a very minimal impact on government tax receipts, while its effectiveness and contribution to the business world would be very significant, particularly during the current economic slowdown.
As for Corporate Income Tax, the report recommends implementing a tax regime for dividends and capital gains analogous to the tax credits in place for venture capital firms.
The report contains a range of other proposals, such as a deduction in Property Transfer Tax and Stamp Duty for companies undertaking rights issues, and credits on inheritance tax on MAB-listed shares. It also recommends applying the same tax regime to this alternative market as that used for other secondary securities markets, in order to avoid potential discrimination.
The proposals in the BME’s letter to the Ministry include a recommendation for allowing a deduction in Personal Income Tax (IRPF) payable for individual savers who invest in a stable, non-speculative manner in MAB-listed companies, and for deferring capital gains tax if the individual reinvests in a MAB company.
Tax breaks are particularly appealing to investors who are considering their investment alternatives, and have been shown to be one of the most effective tools for developing the alternative markets already in operation in Europe, notably the Alternative Investment Market (AIM) in the UK, which, according to the report, “can attribute part of its success to the specific tax advantages it offers investors.”
The success of the MAB will offer a number of additional advantages to small and mid-cap issuers by introducing greater management discipline, an enriched corporate culture and improved transparency while raising their profile among the various economic and social agents.
The operating rules governing the MAB, were drafted by BME in response to issuers whose special characteristics warrant special treatment, and were given the green light by the CNMV in March. The MAB now offers 16 Registered Advisers who assess the suitability of interested companies and help them prepare the required disclosure. This tailored approach complements other market segments: over 3,300 SICAVs have been listed since May 2006, while venture capitalists began listing in June 2007.
