International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

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

Spain: Spanish corporate income tax hike: New measures

gallardo.jpg

Gonzalo Gallardo

At the end of 2016, a provision appeared in Royal Decree-law 3/2016 of December 3, introducing important changes to the Corporate Income Tax Law. Prior to that, Royal Decree-law 2/2016 of September 30 2016, had amended the prepayment system relating to this tax, establishing a minimum advance payment based on the income per books rather than the tax base. Both of those provisions are aimed at reducing the public deficit by immediately increasing the amount collected for corporate income tax, and mainly affect companies with high revenues and multinationals operating in Spain (large enterprises). In this commentary, we will highlight the three most relevant changes brought in by the new provision.

Firstly, for fiscal years starting on or after January 1 2016, regulations on the use of tax assets (tax losses and tax credits for the avoidance of national and international double taxation) have been made stricter for large enterprises by raising the percentage limits on the tax base and establishing new limits on tax payable.

Consequently, even where there are sufficient tax credits available, if the tax base is positive, the tax settlement will always result in an amount payable. In practice, this gives rise to a deferral in the use of those tax credits (as there is no deadline for using them) which, apart from the financial effect of bringing forward the payment of taxes, has an important accounting impact if the use of tax credits is delayed beyond the period accepted for their capitalisation for accounting purposes.

Secondly, for fiscal years starting on or after January 1 2017, taxpayers can no longer deduct the losses incurred on the transfer of holdings in companies that qualify for the exemption regime (qualifying holdings). That deduction is also not permitted in the case of foreign companies subject to low taxation, regardless of the percentage holding in their capital.

This is, in part, a consequence of the exemption method established some time ago for qualifying holdings in foreign companies and recently extended to Spanish companies. However, if the loss is incurred when the company is dissolved, it can be deducted, provided that it is not derived from a reorganisation operation or the company's activity continues. Thus, what this measure actually seeks is for the losses not to be recognised at the level of the shareholders during the lifetime of the company.

For holdings that do not meet these requirements (non-qualifying holdings in companies not located in low-taxation territories), the previous rules remain in force, so the losses continue to be deductible when the holdings are transferred to third parties or when the company is dissolved other than through a reorganisation operation covered by the tax neutrality regime.

Lastly, as from fiscal years starting on or after January 1 2016, all corporate income taxpayers are obliged to reverse on a straight-line basis over a period of five fiscal years, the impairment losses in respect of holdings in the capital of companies (resident in Spain or abroad) that have been deducted in past fiscal years (we remind you that taxpayers have not been permitted to deduct impairment losses on holdings since January 1 2013), without this being conditional on the recovery of the value of the investee. Thus, after the five-year period elapses, shareholders will not have deducted any impairment losses in respect of their holdings, and those losses will be tax deductible when the entity is transferred or dissolved according to the regime mentioned above.

Gonzalo Gallardo (gonzalo.gallardo@garrigues.com), Madrid

Garrigues

Tel: +34 915145200

Website: www.garrigues.com

more across site & bottom lb ros

More from across our site

Sandy Markwick, head of the Tax Director Network (TDN) at Winmark, looks at the challenges of global mobility for tax management.
Taxpayers should look beyond the headline criteria of the simplification regime to ensure that their arrangements meet the arm’s-length standard, say Alejandro Ces and Mark Seddon of the EY New Zealand transfer pricing team.
In a recent webinar hosted by law firms Greenberg Traurig and Clayton Utz, officials at the IRS and ATO outlined their visions for 2023.
The Asia-Pacific awards research cycle has now begun – don’t miss on this opportunity be recognised in 2023
An intense period of lobbying and persuasion is under way as the UN secretary-general’s report on the future of international tax cooperation begins to take shape. Ralph Cunningham reports.
Fresh details of the European Commission’s state aid case against Amazon emerge, while a pension fund is suing Amgen over its tax dispute with the Internal Revenue Service.
The OECD’s rules may be impossible for businesses to manage, according to tax experts from companies including Shell.
Sanjay Sangvhi and Sahil Sheth of Khaitan & Co explore this legal concept and its implications for companies doing business in India.
The UK government is now committed to replacing the ‘super-deduction’ with a 100% capital allowances regime to offset the impact of the corporate tax rise to 25%.
Corporate tax is set to rise in the UK for the first time in decades, but the headline rate remains historically low despite what many observers think.