Global Tax Alert | 10 June 2013

Spain announces amendments to patent box regime; other measures to promote R&D activities and support small- and medium-size companies

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The Spanish Government published a draft bill, dated 24 May 2013, which contains a number of measures that aim to bolster the Spanish economy and to boost investments in small- and medium-size companies.

This draft bill has only just been published, and may undergo changes throughout the approval process.

Detailed discussion

Patent box regime

In 2008 Spain introduced a “patent box” regime which provides for a 50% exemption for income derived from the licensing of certain qualifying intellectual property (IP) rights.

The draft bill includes a number of amendments to this regime, including:

  • An increase in the exemption percentage from 50% to 60% is proposed, but the exempt amount would then be calculated on the net income generated by the assets, (currently the exemption is calculated by reference to gross revenue).
  • The draft bill proposes to extend the exemption to income from the licensing of IP assets acquired from third parties. The proposed exemption is equal to 40% of net income and is subject to compliance with the following requirements: (i) the IP assets must not have generated income benefitting from this regime in the past, (ii) the IP assets must be held for at least 2 years, and (iii) the licensing of the IP must be performed through adequate substance (human resources and material means).
  • It is also proposed to extend the exemption to capital gains deriving from the transfer of the IP assets to an unrelated party.
  • Under the patent box regime, the exemption is not available to income deriving from the qualifying IP rights in excess of six times the assets' base cost. The proposed amendment to the patent box regime suppresses this limitation.

Other features of the original patent box regime, such as the list of qualifying IP assets, remain unaltered.

Finally, according to the draft bill, the existing patent box regime will continue to be applicable to the licenses of qualifying IP existing before the Law with these amendments enters into force.

Other amendments

R&D tax credit

For year 2013, the R&D and innovation activities tax credit (together with other applicable tax credits) is generally limited to 25% of the corporate income tax liability. The draft bill removes the Spanish tax credit ceiling for R&D tax credits, under certain conditions.

The amendments contained in the draft bill enable taxpayers complying with certain requirements to elect to apply the tax credit without being affected by this ceiling provided that they limit the tax credit to 80% of the original amount. Additionally, if the tax credit cannot be effectively applied in the year after it was generated due to the lack of sufficient tax quota, the company may be entitled to a refund of the relevant amount. The maximum annual tax credit eligible under this special regime is set at 3 million Euros.

New tax credit for reinvestment

The draft bill proposes a new tax credit for small- and medium-sized companies (turnover of less than 10 million Euros in the prior year) that reinvest their annual profits, or a part thereof, in the acquisition of new tangible fixed assets or real estate properties to be used in the company's business activities for a minimum period of 5 years or its useful life, if shorter.

Under the proposed rules, these companies would be granted a tax credit of 10% on the part of the annual profit which is reinvested in qualifying assets and subject to a number of requirements and provided that the entities book a reserve, the distribution of which is restricted, for the amount of the annual profit which benefits from the reduced taxation.

VAT cash accrual method

The draft bill introduces a new optional VAT regime, included in the 2006/112/EC Directive, according to which the accrual of VAT may be deferred until the payment of the invoices, but not later than 31 December of the year following that in which the relevant transactions were performed. Taxpayers that opt for this regime may only deduct input VAT when the relevant invoices are paid. This system also affects taxpayers' clients (even those that did not opt for the special regime) who may only deduct input on these invoices when they are effectively paid.

It is proposed that this new regime be available upon election to taxpayers with a turnover not exceeding 2 million Euros in the previous calendar year.

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

EY Abogados, Madrid
  • Laura Ezquerra
    +34 91 572 7570

  • Juan Cobo de Guzmán
    +34 91 572 7443

Ernst & Young LLP, Spanish Tax Desk, New York
  • Inigo Alonso Salcedo
    +1 212 773 8692

EYG no. CM3520