Bloomberg Tax recently spoke to Jose Luis Migoya, head of international tax at Spanish utility Iberdrola, about growing international tax pressures, complying with the company’s busy M&A year and incentives to move towards clean energy.
Migoya has been with Iberdrola for more than 25 years as the company has grown into one of the leading international operators of renewable energies in Europe and America.
Bloomberg Tax: In 2020, Iberdrola made a number of acquisitions in different countries. How did you deal with transaction work amid the pandemic and the associated restrictions?
Migoya: There have been some difficulties, especially with the large transactions we have seen, as this type of work is usually based on face-to-face meetings, contacting outside advisors, etc. and all of this now needs to be done virtually.
From a practical point of view, it was probably more complicated. But it’s not that bad either. Tax work is about assistance and is based on analysis of files and meetings that can be held virtually.
I think the challenge lies with those directly involved in the negotiations, those responsible for development and strategy. It was certainly more difficult for them to do so without having the opportunity to negotiate in person.
Bloomberg Tax: Iberdrola operates in the UK through its Scottish Power subsidiary. Do you see that Brexit and the recently agreed agreement with the EU are having a significant impact on the company’s tax work?
Migoya: I think there are several levels. We have been following the issue closely, although there aren’t too many issues from a tax point of view. It is correct that directives no longer apply and that there will be a transition to other rules, which could be bilateral agreements, etc. We weren’t too concerned, however, that Britain was leaving in this vein or that there would be substantial changes to its relationship with headquarters.
From a tax point of view, the biggest problem is what we see now: the customs problem, which complicates the very simple process of moving across borders until recently to import equipment or move employees. This is now more complicated and means more paperwork, bureaucracy and, indirectly, greater logistical difficulties.
Bloomberg Tax: As a result of the pandemic, the Spanish government coalition has postponed many of its more ambitious tax reform plans until at least next year. How do you see the possibility of increasing corporate and other taxes in the budget for the next year?
Migoya: I think that both in Spain and in the other countries we operate in, we are falling into a scenario where different governments will try to increase tax revenues as much as possible. Each country is likely to have different strategies, but it is clear that there is a general atmosphere in which we can see that tax increases are likely in all countries. If you consider the change in administration in the US or the importance of Brexit in the UK, as well as in countries like Brazil and Mexico, we should expect a change, although it depends on whether it will happen in 2021 or 2022 in the country.
I think we will try to increase revenue in Spain and some of the proposed measures, such as increasing the dividend rate, could have an impact on us. There aren’t many ways to avoid this. Whether we think it is fair or not, or whether we have arguments about regulation that we think should be taken into account, is irrelevant. Since these are proposals, we will be affected by them.
We will have to see whether or not the Spanish “Google Tax” (a tax on digital services that was passed last year and came into force in January) affects us. These are all changes aimed at increasing sales. And as a multinational that has been blessed with good results, we are a target when it comes to increasing sales.
It will be important to see how the tax authorities’ approach affects the revenue issue, whether or not they are more aggressive on audits and inspections. And if that will perhaps slow down the number of initiatives that we have seen recently in several countries, including Spain, where tax authorities have tried to take a more collaborative approach with large taxpayers by trying to increase transparency and collaboration. We’ll have to see whether these earnings pressures will stop or intensify this approach.
Bloomberg Tax: What would you like to see in relation to new environmental taxes and initiatives to promote the energy transition?
Our view on this is clear and we have argued for many years. When it comes to taxes, we have always defended the principle of “whoever pollutes, pays” and that if not, those who do not should not pay. Or at least they don’t have to subsidize those who do. With this in mind, we are promoting an environmental tax system that taxes those who have a significant impact on the environment, but also avoids double, triple or even quadruple taxes. In this sense, we have to see what is happening at EU level and how global solutions for green taxes develop and how these are carried over to Spain.
In Spain we had a political landscape where taxes in this area have increased at the regional level. In many cases, these taxes have been blocked or even rejected by the courts as unconstitutional, meaning they will have to be rewritten. There were taxes that did not have a clearly defined taxable moment, taxes that others duplicated at national level, etc. I think it is important to be clear here: environmental taxes that are well defined, and not a flood of different taxes the European one , national, regional and local level. The same taxable point in time should only be taxed once and at an appropriate rate.
Bloomberg Tax: Are you reading something interesting at the moment, professionally or otherwise?
Migoya: I don’t read more about work than about emails and papers. I have a lot of books on the table and others that I have bought. I’m reading the latest Ken Follet book, although I’m making pretty slow progress. I still buy a lot of books – I just struggle to read them!
This interview was conducted in Spanish.