Global Tax Alert | 22 July 2013

EU Commission launches new investigation of the Spanish financial goodwill tax amortization

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On 17 July 2013, a press release announced that the EU Commission opened an investigation procedure (IP/13/701) regarding the tax deductibility of the “indirect” financial goodwill on the acquisition of shares in non-Spanish resident companies.

Spanish resident entities that have taken the tax amortization in respect of indirect acquisitions need to closely follow this investigation procedure and how it may potentially affect them.


The financial goodwill tax facility

Effective 1 January 2002, Spain introduced legislation allowing Spanish companies to take the tax amortization embedded in shares of non-Spanish companies (the “financial goodwill”) as a tax expense irrespective of its accounting treatment (“book-to-tax adjustment”). As a result, a Spanish company acquiring at least a 5% stake in a foreign subsidiary could deduct from its taxable base the difference between the acquisition cost of the shares and the market value of the underlying assets of the foreign company during the 20 years following the acquisition.

Until 2012, the Spanish tax authorities took the position that only financial goodwill related to first tier subsidiaries could benefit from this tax deduction; this approach has been disputed by taxpayers in the courts. The amortization of financial goodwill derived from “indirect acquisitions”, i.e., where the Spanish entity acquired the shares of a holding company owning, in turn, the shares in the foreign operating entities was therefore not allowed for tax purposes.

EU Decisions on the financial goodwill tax amortization

On 28 October 2009 and 12 January 2011, the EU Commission issued two Decisions stating that the Spanish financial goodwill amortization legislation constituted unlawful State aid as it resulted in significant advantages for Spanish companies over their competitors when acquiring shares in EU and non-EU companies.

However, the Commission understood that, due to the existence of legitimate expectations of the beneficiaries of the tax measure, the recovery should not apply with regard to acquisitions made before 21 December 2007 - for EU acquisitions - and 21 May 2011 - for certain other non-EU acquisitions.

The new investigation procedure

In 2012 the Spanish tax authorities issued two binding rulings, dated 21 March and 26 October, taking the position that the tax amortization of financial goodwill corresponding to second and lower-level subsidiaries is also allowed for tax purposes.

According to the press release that has now been issued, the EU Commission takes the preliminary view that the interpretation made by the Spanish tax authorities in these two rulings constitutes unlawful State aid, since it broadens the scope of application of a measure that had already been declared to be illegal.

The press release also states that it is the EU Commission's view that beneficiaries of the tax amortization of the financial goodwill on indirect acquisitions based on the grounds of this new interpretation cannot claim to have “legitimate expectations”, as this interpretation was not accepted when the rule was declared unlawful State aid in 2009 and 2011.


The EU Commission's investigation is extremely relevant for Spanish entities that take the financial goodwill amortization on indirect acquisitions of non-Spanish entities.

Once the investigation is formally published in the EU Official Journal, taxpayers that are affected by the same may make observations.

Should the EU Commission issue a Decision taking the stand that the financial goodwill amortization derived from said indirect acquisitions constitutes unlawful State aid, taxpayers affected by the same may appeal the Decision with the EU Court of Justice.

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

Ernst & Young Abogados, Madrid
  • Laura Ezquerra
    +34 91 572 7570
  • Alfonso Puyol
    +34 91 572 5010
  • Maximino Linares Gil
    +34 91 572 7123
Ernst & Young LLP, Spain Tax Desk, New York
  • Inigo Alonso Salcedo
    +1 212 773 8692

EYG no. CM3663