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New Measures in Light of the Global Financial Crisis

20 Sep 2011

On 19 August 2011, the Spanish government passed Royal Decree-Law 9/2011, which contains a raft of measures designed to reduce the budget deficit.

These measures include certain corporate income tax changes, the aim of which is, without raising tax rates (the standard CIT rate is held at 30%), to bring forward collection, at least until 2013, mainly via instalment payments (which are advance payments made towards the final corporate income tax bill in April, October and December each year).

Taxand Spain discusses the impact of the new measures and how investors could benefit from reduced corporate income tax rates for instalment payments.

There are three main changes:

  • First, the rate of tax on instalment payments has been raised for "very large enterprises." To date, a flat rate (21%) has been charged on instalment payments across the board, irrespective of the size of enterprise. Now however, starting from the next instalment payment date, the rate will be 24% for enterprises with net revenues of more than EUR 20 million but not exceeding EUR 60 million, and 27% for enterprises with net revenues above EUR 60 million. In the case of enterprises with net revenues below EUR 20 million, the 21% rate remains unchanged.
  • A second measure has set certain limits on tax loss carryforwards for very large enterprises (also only applicable, in principle, in 2011, 2012 and 2013) and has extended the period allowed for offset from 15 to 18 years.
    Under the new rules, enterprises with net revenues of more than EUR 20 million (but not exceeding EUR 60 million) reporting taxable income for the year can only reduce that income by up to 75% through the offset of prior years' tax losses, and the taxable income of enterprises with net revenues above EUR 60 million can only be reduced by up to 50%.
  • Lastly, a limit has been set on the deduction for financial goodwill, also applicable only up to 2013, as the tax credit has been reduced from 5% to 1% for 2011 and 2012. These are also timing adjustments, as amounts that are not taken in those years can be used in subsequent years.

Taxand's Take

Although these changes could prompt a temporary cash-flow problem for the Spanish subsidiaries of some MNCs, it might be a good time to consider whether this new scenario has increased the need for certain tax planning measures which could reduce the corporate income tax base,. For example, accelerated depreciation charged on new property, plant and equipment or new real estate investments, a measure launched by the Spanish government a few months back, does just that, as does the application of the tax consolidation rules, etc.

Your Taxand contacts for further queries are:
Vicente Bootello
T. +34 91 514 52 00

Jos? Ignacio Ripoll
T. +34 91 514 52 00

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