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Spain: Retrospective application of Spanish horizontal and indirect tax consolidation? Food for thought


Abigail Blanco

The 2015 corporate income tax reform package has made considerable changes to the rules on companies that can be consolidated. Many of these stem from the European Court of Justice (ECJ) judgment dated June 12 2014, on joined cases C39/13 to C41/13.

In these cases, the ECJ concluded, in relation to the Netherlands law on corporation tax, that the legislation of a member state is contrary to the freedom of establishment principle if it prevents both:

  • a resident parent company from being able to form a single tax entity with resident sub-subsidiaries controlled by intermediate subsidiaries resident in another member state (while allowing this if the intermediate subsidiaries are resident in the Netherlands); and

  • a number of resident subsidiaries controlled by a parent company resident in another member state from being consolidated for tax purposes (while allowing this if the common parent company is resident in the Netherlands).

The recent Spanish reform, however, has gone significantly over-and-above the ECJ's instructions by introducing 'horizontal consolidation' (among resident 'sisters' owned by a non-resident parent company) and 'indirect consolidation' (where the resident parent company's ownership of the resident subsidiaries is obtained through non-resident intermediate subsidiaries) for groups in which the non-resident (parent or intermediate) companies are not resident in the European Union.

In cases of indirect consolidation it even allows the intermediate ownership interests to be held through companies resident in tax havens or through companies not meeting other requirements to be included in a tax group – that they must not be involved in an insolvency proceeding or subject to different tax rates to the parent company or representative, for example.

It turned out that the tax reform in Spanish law entered into force, in the wording of the new Spanish Corporate Income Tax Law, for tax periods that commenced on or after January 1 2015, whereas the ECJ judgment did not place any timing restrictions on its effects. Consequently, consideration may be given to the possibility that the companies that were not able to consolidate until 2015 may claim from the Spanish tax authorities the effects of consolidation from earlier periods, where consolidation could not be applied because of the restrictions on the companies that could be consolidated in Spain before the reform (rather than as a result of a company decision).

This possibility poses a host of issues including, for example, the effect that failure to meet the formal requirements to be consolidated may have, such as the express resolutions to be consolidated, or the impact of the statute of limitations (what happens if a tax credit generated in a statute-barred period is still in a period when it can be used?).

The advantages of consolidation for tax purposes should not be overlooked when deciding whether or not to commence the procedure for correcting self-assessments. It must be recalled in this sense, for example, that in consolidation for tax purposes, losses are automatically offset against income for the fiscal year among the various group companies; or that the group's losses carried forward for offset may be used unrestrictedly in the group whereas those generated by new companies to the group before they were consolidated may only be offset if that company generates income while it is part of the group. The same happens with the tax credits generated in the group or pre-consolidation.

All these comments provide food for thought to analyse whether consideration should be given to horizontal and indirect consolidation with retroactive effects.

Abigail Blanco (
Garrigues Madrid


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