Spain: Spain takes the lead as tax changes reflect economic upturn
José Ignacio Ripoll
In July 2014, the Spanish Government approved and published an assortment of new pieces of tax legislation, which by and large denote the good times being experienced by the Spanish economy and its lead role in implementing the changes to tax rules stemming from the OECD BEPS project. After a spate of restrictive measures in preceding years, intended to combat the economic crisis, at the end of 2014 the Spanish Government adopted a package of measures aimed primarily at putting in place an important across-the-board reduction to the tax burden on taxpayers, the latest instance of which is to be an increase in taxpayers' disposable income and, as a result, a continued improvement in the various economic indicators. This tax reform, which began on January 1 2015, was designed to be implemented in two phases, in 2015 and 2016, in tune with a conservative view of the economic forecasts.
On July 11 2015, however, in the wake of the economic data for the first half of 2015, Royal Decree-Law 9/2015 was published, which brought forward a reduction to the personal income tax and non-resident tax rates, plus a reduction to the corporate income tax withholding rate to 2015.
Published on the same date was Royal Decree 634/2015, approving the new corporate income tax regulations, which set out a number of changes to adapt the law to the amendments introduced in the new Corporate Income Tax Law, the key amendments of which have been discussed over the year in earlier ITR international updates. These amendments relate to technical details enacted in the law itself, such as the calculation to determine a pure holding company (that is, without any economic activity), the revision of the points related to the depreciation of the various assets, the adaptation of certain formal obligations relating to the various special corporate income tax regimes or the implementation of the procedure for using and paying deferred tax assets.
Although the most prominent change is unquestionably the inclusion of the country-by-country reporting requirements (described in detail in the July/August issue of ITR), under which, in line with the latest work by the OECD on Action 13 of the BEPS Action Plan, Spanish resident companies which are the parent companies of a group must submit a report every year on each jurisdiction they operate in, containing information on the gross revenues, the income before taxes, the corporate income tax paid and accrued, etc. The purpose of these reports will be to assess the risks in the transfer pricing policy of a business group. This reporting requirement, set to come into force for fiscal years beginning on or after January 1 2016, will only apply to collections of persons or entities forming part of the group whose net revenues in the previous 12 months are higher than €750 million (which appears to be separate from the corporate income tax return).
Also worth mentioning is the proposal submitted by the Government in its Bill for the General State Budget Law for 2016. Published in the Official Gazette of the Spanish Parliament on August 6, it will amend the calculation method for the Spanish Patent Box. To adapt domestic law to the decisions adopted within the EU and the OECD (BEPS Action 5), on how to calculate the applicable reduction to income in respect of the licensing or transfer of certain intangible assets, it has proposed the inclusion of the 'modified nexus approach', aimed at adapting the reduction to a distribution of the expenditure incurred by the entity to develop the asset, in relation to the total cost of the asset.
In short, these recent changes are clearly, at least in part, a result of the recovery of the Spanish economy at every level, a recovery which should also serve to draw new investment projects to Spain.