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Spain to announce corporate tax cut tomorrow

Spain will announce a number of tax reform measures tomorrow, including a corporate tax rate reduction which could see five percentage points shaved off the existing rate.

The reforms will chiefly be aimed at attracting foreign investment and facilitating job creation to try and bring down Spain’s unemployment rate. Key changes will be in line with recommendations from the OECD, IMF and G20, who urged the government to cut tax rates and broaden the tax base.

The government had promised tax reform measures would be introduced before the end of its term in 2015 and Alejandro Escoda, head of tax at Cuatrecasas, Gon?alves Pereira, believes the size of the corporate tax cut will probably be greater than previously expected, given that the government is seeking re-election.

“They have tried to avoid any filtration to the media about what is going to happen. The corporate tax rate will be reduced,” said Escoda. “Reductions are likely to be higher than expected, for the election.”

The cut is likely to see Spain’s corporate tax rate drop five percentage points from 30% to 25%, though it could even fall further to somewhere between 20% and 25%.

“Corporate tax, which is 30%, will drop down to 25%, maybe even as low as 20%,” said Carlos Gabarró of ALTALEX, who believesthe government is going to take a “conservative approach to attract foreign investors into Spain”.

However, many existing deductions may be eliminated to fund such a rate reduction.

Individual income tax is also expected to fall to below 50%. On the indirect tax front, Escoda does not expect any changes to Spanish VAT.

However, despite the lack of VAT reform, Gabarró expects tomorrow’s reform package to be wide-ranging.

“We are now expecting major reforms in Spain. These will change lots of things in the fiscal framework,” he said.

He also expects the announcement to build on recommendations from the March report of the government-commissioned expert panel, which could mean the possible elimination of the wealth tax. The lack of VAT changes would be counter to committee recommendations, however.

Despite what is sure to be a day of good news for businesses operating in Spain, the country’s tax authorities are likely to remain as aggressive as ever.

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