Spain: A holding company’s paradise: New corporate income tax legislation in the Basque Country

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Spain: A holding company’s paradise: New corporate income tax legislation in the Basque Country

armesto.jpg

otaegi.jpg

Daniel Armesto


Ilazki Otaegi

The Basque Autonomous Community in Spain, comprising the territories of Alava, Biscay and Gipuzkoa (the Basque Country) has powers to enact its own particular corporate income tax (CIT) legislation and has used those powers to create a very interesting tax scenario for holding companies. Basque regulations compare favourably with the regulations applied in the rest of Spain and in most other European countries. The new CIT legislation applicable in the Basque Country as of 2014 is very innovative regarding the tax treatment of holding companies, while in many ways it simplifies the previous legislation. This simplification is especially reflected in the unified tax treatment applicable to income deriving from ownership interests in companies, whether the income relates to dividends or capital gains obtained on the disposal of shares, and whether the subsidiary is tax resident in Spain or abroad.

Companies subject to Basque autonomous regulations will generally benefit from an exemption for dividends received and capital gains obtained on transfers of shares, both in Spanish and non-resident companies, while they can still deduct the impairment of these shares or capital losses on their transfer. Logically, there are certain recapture rules to prevent double-dipping. For example, if an impairment loss has been deducted, a subsequent capital gain on the sale of those shares will be taxable up to the amount of the previous deduction. But once you have made up for the previous deduction, any additional gain will be exempt.

Another distinctive feature of the Basque rules is the possibility of taking a tax deduction for the financial goodwill embedded in the acquisition price of the shares in both Spanish and non-resident companies. Financial goodwill is the excess of the acquisition price of the shares over the market value of each of the underlying assets and liabilities. A Basque resident acquirer can depreciate this difference for tax purposes at a 12.5% yearly rate, without needing to record an impairment reserve in the books. This provision is based on different principles than those governing the deduction of financial goodwill under general Spanish rules, so it is not affected by the EU decision on state aid relating to those rules.

Moreover, the deduction of financial expenses is not capped under Basque CIT legislation. Holding companies are able to fully deduct their financial expenses, even those incurred to finance the acquisition of shares benefitting from the participation exemption. They are only subject to thin capitalisation rules, with a 3:1 debt to equity ratio, applying only to net debt with related entities. Furthermore, thin capitalisation rules do not apply if the net debt with related entities does not exceed €10 million ($14 million).

In a nutshell: income is exempt; expenses and losses are deductible. Shouldn't paradise be like this? At least for a holding company!

Daniel Armesto (daniel.armesto@garrigues.com) and Ilazki Otaegi (ilazki.otaegi@garrigues.com)

Garrigues, Bilbao

Tel: +34 944 700 699

more across site & shared bottom lb ros

More from across our site

Levine, who served under the Joe Biden administration, led the US’s negotiations on the OECD’s two-pillar solution
The deal to acquire ITR's parent company is expected to complete by the end of May 2025
JBS, the biggest meat company in the world, allegedly used Luxembourgian ‘mailbox companies’ to avoid taxes between 2019 and 2022
Despite the conviction of Jessa Dabalos, the Tax Practitioners’ Board’s investigative work continues with five outstanding PwC scandal probes
Heads of tax need to push their teams forward as strategic business advisers to add value across their organisations, says Sandy Markwick
Scott Bessent reportedly felt undermined by Musk naming Gary Shapley as acting IRS commissioner; in other news, Baker Tilly will combine with a top 15 US firm
The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Gift this article