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Spain: Spanish government presents tax reform package



Vicente Bootello

José Ignacio Ripoll

In an earlier article, we discussed the report the Spanish Government had commissioned a group of experts to prepare on the Spanish tax system. In this issue we look at the ambitious tax reform that the Cabinet of Ministers presented on June 20 2014, through several preliminary Bills (still to be debated and approved in Parliament and therefore not yet final) and seeking to overhaul the main taxes in Spain. Given the scope and depth of this process, in this article we will simply introduce the objectives of the reform and then take a brief look at some of the changes made to corporate income tax. In the press conference it gave on June 20, the Ministry of Finance stated that its main objectives are:

a) to boost job creation by lowering taxes;

b) to improve the competitiveness of companies, by giving them incentives to increase its own resources; and

c) to improve tax fairness.

Focusing just on corporate income tax, some of the main changes introduced by the preliminary Bill are the following:

  • It lowers the tax rate in stages, from the current 30% down to 25% in year 2016 (28% in 2015).

  • Besides retaining the limit on the deduction of finance costs (30% of EBITDA), it bars the deduction of interest on PPLs and on any other hybrid instrument that leads to deferred tax or non-taxation (that is, BEPS in its purest form).

  • Losses arising on intra-group transfers of certain assets cannot be deducted until their transfer to third parties outside the group.

  • As a general rule (albeit with certain exceptions) impairment losses on a good number of assets (for example, intangible, goodwill, and so on) will not be deductible.

  • There is a new 'capitalisation reserve' to encourage companies to shore up their equity, given that it will lower their tax bases by 10% of the amount by which they increase equity subject to certain requirements (creating and keeping a restricted reserve, mainly).

  • Amendments are made to the international fiscal transparency (or CFC) rules.

  • A limit is placed on the use of tax losses which, as a general rule, can reduce the tax base up to a ceiling of 60%, from 2016 onward. It sets out that tax losses would no longer expire, however, as they currently do after 18 years.

  • It unifies the treatment given to dividends and gains on holdings in Spanish resident and non-resident entities, by generalising the exemption regime, for which certain requirements must be met. It also changes the requirements to apply the participation exemption, which will lead to a review of Spanish investment structures in foreign entities.

  • It does away with certain tax credits, while improving the tax credit for research, development and innovation.

Regarding other taxes, we would like to point to the changes it makes to several important components of personal income tax and nonresident income tax (that is, reduced tax rates, new tax scales, modified inbound expatriates regime, eliminated tax deferral in the case of distributions of additional paid-in capital or sales of subscription rights…).

In light of all these changes (without forgetting that we will have to wait for the final wording to emerge from parliament and that they will be discussed in future publications), a first reading of the preliminary Bills containing the tax reform leaves many questions in the air which will require a very careful analysis of how they impact current tax positions.

Vicente Bootello ( and Jose Ignacio Ripoll (, Madrid

Garrigues Taxand

Tel: +345 145 200


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