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Spanish tax reform: amendments to the government’s initial idea

30 Oct 2014

Spain is in a state of expectation, with sweeping tax reform promised imminently. The Lower House of the Spanish Parliament has published the Bills through which the reform is to be made, in order for them to be debated by the different political groups. Taxand Spain highlights the progress of this proposed reform and the potential impact on multinationals moving forward.

As expected, the Bills unveiled by the government have already seen some significant changes. These texts, which continue to be drafts and which will likely undergo some amendments, maintain the so-called 'announcement effect' in some of their proposals. This means that if the current wording of the Bills is approved, they will have effects on facts prior to their entry into force (expected for 1 January 2015). 

Below are some of the main changes between the wording of the Preliminary Bill submitted in June and the Bill finally brought before parliament:

Corporate income tax

  • Although the Bill maintains the nondeductibility (in any amount) of finance costs derived from participating loans, this restriction will not apply to those granted prior to 20 June 2014
  • Although the Bill maintains the restriction on the deduction of losses incurred on intragroup transfers of shares or holdings, property, plant and equipment, investment property, intangible assets and debt securities, until they are transferred to third parties or the transferors and acquirers leave the group, it now specifies that the losses can be deducted, in general, when these assets are unrecognised at the acquirer
  • The Bill maintains the proposal to create a “capitalisation reserve” aimed at shoring up equity at companies, which will entail a reduction in the tax base of 10% of the amount of the increase in equity where certain requirements are met (mainly, the creation and maintenance of a restricted reserve)
  • Regarding tax losses, although the intention remains to limit their use to a maximum of 60% (although this could still be increased up to 70%) and eliminate their expiration which was previously established at 18 years, the initial idea of the Preliminary Bill, which was for the tax authorities to be able to review them without time limits, has changed. The new wording confines the right of the tax authority to review tax losses to a maximum of 10 years following their generation. After that, the taxpayer will only have to provide evidence of their existence through the tax returns which were generated and the relevant accounting information
  • The Bill maintains the treatment established in the Preliminary Bill regarding  dividends and capital gains derived from shares in resident and non-resident entities in Spain. The Bill generalises the exemption regime, for which certain requirements must be met (which are relaxed in the Bill). However, it introduces new cases of non-applicability or limitation on the exemption such as for (i) successive transfers of securities of the same kind, and (ii) gains on the transfer of shares in certain asset-holding entities

Personal income tax

  • The change brought in by the Preliminary Bill that caused the greatest stir was the restriction on the exemption for severance pay to EUR 2,000 per year worked. In this regard, the Bill maintains a limited exemption but establishes an overall exempt limit of EUR 180,000. Additionally, this was one of the measures affected by the 'announcement effect', for dismissals taking place on or 20 June 2014 (the announcement date of the Preliminary Bill). However, the current wording establishes that this limit will not apply to (i) severance for dismissals taking place before 1 August 2014, or to (ii) dismissals taking place on or after that date where they derive from an approved collective layoff or a collective dismissal in which the opening of the consultation period was notified to the labor authorities prior to that date

Your Taxand contacts for further queries are:
Vincente Bootello
T. +34 915 145 200

Jose I Ripoll
T. +34 915 145 200


Taxand's Take

As we noted at the time, although there are provisions which the government seems set on approving (perhaps with some additional technical clarification), a part of the tax reform is still up in the air, awaiting the parliamentary debate and resulting amendments. Therefore multinationals should keep abreast of the latest developments as they occur.

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