The CIT legislation in force prior to the current Law 27/2014 (CIT Law), traditionally established the possibility for the acquirer of a company resident in Spain to recover the tax paid by the transferor (whether corporate, personal or nonresident income tax), through the double taxation tax credit (established in the last version of subarticles 4 and 6 of article 30 of Royal Decree 4/2004), especially in the wording in force since January 1, 2013.


As a result of the introduction of the exemption for capital gains obtained on the transfer of significant holdings in companies (article 21 CIT law), subject to the fulfillment of certain requirements, this legislation has been repealed with effects for fiscal years commencing on or after January 1, 2015. As normally the transferor (company) would not be taxed on the transfer, there would not be any tax to be recovered by the acquirer.


In acquisitions of companies, usually, the transfer price is higher than the acquisition price paid by the transferor, generating a capital gain for the difference which is subject to taxation. Normally, this difference, or part of it, relates to the unrealised gains and goodwill of the business (in the case of individuals, tax is also generated on the company’s retained earnings)

As these unrealised gains (including the goodwill) translate into profits at the acquired company, which are subject to tax for a second time but for a different taxpayer, it was possible up to now to recover the tax paid by the transferor, by applying the double taxation tax credit.


One of the particularities was, undoubtedly, that the tax was not recovered by the taxpayer that had actually paid it, or by the company that would finally pay it the second time, but by a third party, the acquirer of the holdings, often generating an important tax credit.


Consider a company that is transferred for 110, with a total shareholder contribution of 10, meaning that the transferors obtain income of 100, without reserves because they were distributed before the transfer, and they have a tax debt of 25.

Accounting equity / Capital

Transfer price



Income / CIT base 100
CIT rate

Tax payable




In this case, the acquirer could recover the 25 paid by the transferor if the company were to generate income of 100 and distribute it, this tax credit being additional to the non-taxation of the dividend.


Income of the company year  N+1

CIT rate

Tax payable




Income after CIT

Potential tax credit (25%)




The situation described is common in transactions in which the price is calculated based on EBITDA or includes the value of intangibles, such as brands or the like.


In order to apply this mechanism to cross-border transactions in which a foreign company acquired a company resident in Spain (or a Spanish group), the acquirer had to be a Spanish vehicle (normally, a company or a permanent establishment) since the tax credit only applied in the acquirer’s CIT return.

Moreover, the law included the possibility of recovering the tax paid not only on the acquisition but on any other previous one, that is, the tax paid by the successive transferors.


The complexity of this mechanism to avoid double taxation is evident, as is the benevolence, at least from a strictly technical point of view, of its replacement by the exemption of article 21 CIT Law, in force since January 1, 2015.

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That is why it is impossible to apply this mechanism for fiscal years starting on or after January 1, 2015, as it has been repealed by Law 27/2014. However, transitional provision twenty-three of this Law temporarily maintains its application but exclusively for companies acquired in tax periods that commenced for the transferor before January 1, 2015 (where certain requirements are met).


It is also possible to recover this taxation in relation to income included in the personal income tax base, of fiscal year 2014 and previous, by individual transferors.


In other words, in the case of acquisitions made before January 1, 2015, even today it is possible to recover the tax paid by the transferor, and due to the change in the applicable legislation, the current owner of the holding will have the last chance to recover the tax and thus avoid the consolidation of the double taxation on the company’s future profits.


Any subsequent transfer will make this possibility disappear.

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M&A Tax | Spain

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