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Are losses obtained on intra-group transactions deductible under Spain's participation exemption regime?


For many years the Spanish 'participation exemption' regime had the particular characteristic that whereas the capital gains and dividends obtained by Spanish companies from foreign shares were exempt from corporate income tax (subject to given minimum investment and taxation requirements), any losses deriving from the transfer of those shares were deductible for corporate income tax purposes.

In 2013, the deduction of losses arising on transfers of shares made between companies in the same corporate group (i.e. group for corporate law purposes) was restricted, by deferring the right to deduct them to when either of the two companies left that group, or when the transferee later transferred those shares to third parties outside its corporate group (Law 16/2013).

At the end of 2016, it was decreed that losses on transfers of shares in companies that gave entitlement to the exemption were not deductible (Royal Decree Law 3/2016). Earlier, in 2015 (Law 27/2014 – the new Corporate Income Tax Law), that exemption regime had been extended, with a few amendments, to gains derived from shares in Spanish companies.

So, for all fiscal years that commenced on or after January 1 2017, the governing rule is that, generally speaking, the losses obtained on transfers of shares (Spanish or foreign) are not deductible where those shares give entitlement to apply the exemption regime.

This means we may now have to face situations where a Spanish company obtained losses in a fiscal year when they were deductible (between 2013 and 2017), but the right to deduct them has been deferred, and is going to materialise for tax purposes in another year when they are not deductible (where, in or after 2017, the transfer to third parties occurs or they cease to form part of the corporate group). That may also occur in the context of the consolidated tax group regime, and would affect transfers of shares (Spanish or foreign) made before 2017 between two Spanish companies in the same tax group on which losses were incurred.

Royal Decree-Law 3/2016 did not include any transitional regime specifically defining the treatment of these deferred losses, which means that the transitional provisions existing since 2015 in Law 27/2014 should be used.

So, if we take our cue from the provisions in the general transitional regime set out in that law for treating adjustments for tax purposes (provisional transition number 1), it may be concluded that the deferred losses in a corporate group would be deductible when the shares were transferred to third parties (in that the rules in force when the losses were deferred are applicable to them). It would have to be taken into account, in any event, that the deductible amount of those losses would have to be reduced by a sum equal to the exempt gain being obtained on the transfer made to third parties, if this were the case.

For the case of tax groups, Law 27/2014 put in place a transitional regime that made it clear that when the deferred gains were included in the tax base, it would have to be done using the methods provided in that same Law 27/2014 itself (transitional provision number 25). Accordingly, the deferred gains benefit from an exemption to which they were not entitled when they were obtained (that occurs in the case of transfers of shares in Spanish companies made before 2015). However, in the case of losses (on the transfer of shares in both Spanish and foreign companies) a possible interpretation of this transitional regime, having regard also to the one for corporate groups, could give rise to an odd situation disallowing the deduction of losses generated within the tax group before 2013 (and materialising for tax purposes from 2017 onwards).

According to the above, it would be advisable to carry out a specific analysis on whether the losses derived from the transfer of shares could become deductible (deferred tax losses).


Gonzalo Gallardo (


Tel: +34 915145200


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