With Spain's overall debt load approaching 100% of GDP this
year, Prime Minister Mariano Rajoy needed to act. And that he
did. In May the bearded Spaniard pledged to cut taxes in an
attempt to stimulate the national economy.
|Mariano Rajoy is
a new entry this year
"The general idea is that taxes have to come down," he says.
"The goal is to leave more disposable income in the hands of
families, improve the competitiveness of the economy, raise
savings and above all else to boost employment."
The Rajoy-led government then presented a tax reform package
on June 20 which practitioners have described as "seeking to
overhaul the main taxes in Spain". In line with Rajoy's earlier
comments, the three core aims of the reform effort are outlined
as: boost job creation by lowering taxes; improving the
competitiveness of companies by giving them incentives to
increase their own resources; and improving tax fairness.
A report commissioned by Rajoy, which ultimately led to the
reform package, concluded "the tax base is too narrow and
over-reliant on labour taxes, which are among the most
detrimental to activity".
The reform plans were endorsed by the Spanish Congress on
November 20 and the legislation will enter into force from
January 1 2015.
Under the plans, the country's corporate tax rate will drop
from 30% to 28% next year, with a further reduction to 25% in
2016, while a reduced rate of 15% will apply for a period of
two years for companies formed in 2013 or 2014.
The package will also unify the treatment of dividends and
gains on holdings in Spanish resident and non-resident
entities, by generalising the exemption regime, and alter the
requirements to apply the participation exemption, which will
lead to a review of Spanish investment structures in foreign
While there will be a removal of certain tax credits as a
way of broadening the tax base, the research and development
credit will be improved.
The OECD praised the Rajoy government for continuing to
prioritise updating the Spanish tax code.
"The courageous reforms enacted over the past two years are
paying off," according to OECD Secretary-General Angel Gurria.
"It is now crucial to build on these accomplishments with new
efforts to enhance growth, boost productivity, further improve
competitiveness and get people back to work."
However, while the OECD also praises the incentivisation of
R&D spending, it notes that "the credit, while apparently
generous, is not widely used" and recommends Spanish
authorities speed up the process of certification for tax
Specifically on the indirect tax front, the Rajoy government
in November announced it will introduce a new real-time VAT
reporting system from January 1 2017.
Taxpayers have largely reacted positively to the
"I understand this [corporate tax cut to 25%] is sufficient
to improve the business tax environment and attract
investment," says Maribel Mendez, Spanish group tax manager at
BMW. "Good news is that the use of loss carry-forwards will be
limited to 60% of the taxable income rather than the current
temporary limit of 25% and financial goodwill amortisation will
be back to 5% in 2016."