Global Tax Alert | 7 October 2013

Spain introduces measures to promote R&D activities and to support small and medium size companies

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Executive summary

Law 14/2013 was published in the Spanish Official Gazette on 28 September 2013, and is in force as of September 29, although most of the tax measures are applicable retroactively to tax years starting on or after 1 January 2013. The recently passed law includes a number of measures that aim to boost the Spanish economy and promote investments in small and medium-size companies.1 The measures are detailed below.

Detailed discussion

Patent Box regime

Law 14/2013 amends the Spanish Patent Box regime, introduced in 2008, and which provides a reduction in the income derived from certain qualifying intellectual property (IP) rights which is subject to tax. The following amendments have now been introduced:

  • The percentage of income that is not taxed is increased from 50% to 60%; however, the base is now the net income, rather than the gross revenue. For the calculation of the net income, depreciation and amortization expenses, as well as other expenses directly relating to the IP assets, must be considered. In the case of IP assets which are not registered in the company’s books, the net income is deemed to be 80% of the total revenue associated with the IP.
  • Under the new regime, the reduction is also available for income derived from IP assets which have only been partially created by the company, if the in-house creation percentage amounts to, at least, 25% of the IP asset.
  • The reduction is now applicable to capital gains derived from the transfer of the IP assets to an unrelated party.
  • Under the original regime, the reduction could not be applied once the income derived from the qualifying IP rights exceeded six times the assets’ base cost. This limitation no longer applies.
  • Transactions between companies belonging to a Spanish tax consolidation group need to have transfer pricing documentation in place, in order to benefit from this special tax regime. However, because the original wording, according to which income and expenses were not to be eliminated under the tax consolidation rules, has been suppressed, there are some uncertainties as to how this tax benefit will apply within a tax consolidation group.
  • The list of qualifying IP assets included in the original regime remains unaltered.

The original Patent Box regime continues to be applicable to the license agreements entered into before 29 September 2013.

Limit applicable to R&D tax credit

Law 14/2013 removes the Spanish limit generally applicable to Corporate Income Tax (CIT) credits, which is set at 25% of the CIT liability for 2013, for certain R&D activities.

Companies must limit the tax credit they apply to 80% of the original amount they would have been entitled to credit to benefit from this alternative. The maximum annual tax credit eligible under this special regime is set at €3 million (or €1 million for technological innovation activities, where no R&D is included).

A cash refund is now available for taxpayers that are not able to utilize the full tax credit (with the 20% reduction) in the year after the tax credit was generated.

Other measures applicable to small- and medium-size companies

New reinvestment tax credit

Spanish companies with a turnover of less than €10 million that reinvest their annual profits, or a part thereof, in the acquisition of business assets complying with certain requirements are entitled to a tax credit of 10% (5% in certain cases).

For this tax credit to be applicable, companies must reinvest their profits in the year in which they were accrued or in the following two years and a restricted reserve for the amount of the annual profit which benefitted from the reduced taxation must be booked.

VAT cash accrual method

The Law introduces a new VAT regime, originally foreseen in the 2006/112/EC Directive, under which the accrual for VAT purposes may be deferred until the invoices corresponding to the transactions are actually settled. This regime may be applied starting 1 January 2014.

The so-called “cash accrual regime” is an optional regime available for taxpayers with a turnover not exceeding €2 million in the previous year. Where elected, it affects the accrual date for all the transactions performed by the taxpayer. This system also affects taxpayers’ clients (even where they do not opt for the special regime) who may only deduct input on these invoices when they are effectively paid.

The accrual may be deferred only until 31 December of the year following that in which the relevant transactions were performed.

Impact

The legislation that has been introduced provides for a more advantageous tax environment for R&D activities in Spain, this may be an opportunity to reconsider the R&D plans of multinational groups where Spanish companies are involved.

Endnote

1. The measures originally included in the draft bill were described in EY Global Tax Alert, Spain announces amendments to Patent Box regime; other measures to promote R&D activities and support small- and medium-size companies, issued on 10 June 2013.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid
  • Laura Ezquerra
    +34 915 727 570
    laura.ezquerramartin@es.ey.com
  • Alfonso Puyol
    +34 915 725 010
    alfonso.puyolmartinez-ferrando@es.ey.com
  • Juan Cobo de Guzmán
    +34 915 727 216
    juanangel.cobodeguzmanpison@es.ey.com
Ernst & Young LLP, Spanish Tax Desk, New York
  • Cristina de la Haba
    +1 212 773 8692
    cristina.delahabagordo@ey.com

EYG no. CM3851