Global Tax Alert | 1 November 2013

Spain enacts new tax measures and extends temporary measures including NOL limitation

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On 30 October 2013, Law 16/2013 (the Law) was published in the Spanish Official Gazette. The Law introduces relevant amendments to Spanish corporate income tax (CIT) and extends the application of certain measures to FY 2014 and 2015. Some of the tax measures are applicable retroactively, effective 1 January 2013.

This Alert details the issues that are relevant for Spanish entities holding investments in foreign entities or permanent establishments and discusses the extension of the NOLs (net operating losses) limitation and similar temporary rules.

Extension of temporary measures

In recent years, temporary measures aimed at increasing the collection of taxes in Spain have come into force. These were originally applicable through 2013, but have now been extended to 2014 and 2015. A summary of the most relevant measures follows:

  • Increased CIT interim payment rates applicable to large-size companies (i.e., companies with a turnover for VAT purposes that exceeds approximately €6 million in the 12 months prior to the beginning of the relevant fiscal year) as well as to other companies that voluntarily opt to calculate their CIT interim payment under the method established for large size companies, are extended to interim payments falling due in fiscal years beginning in 2014.
  • The mandatory minimum interim payment that applies to entities with a turnover above €20 million in the 12 months prior to the beginning of the relevant fiscal year is extended to interim payments falling due in fiscal years beginning in 2014 and 2015. This minimum tax is equal to 12% of the accounting profit in the relevant period, which may not be reduced by tax losses from previous years.
  • Large-size companies (as defined above) with a turnover between €20 million and €60 million in the 12 months prior to the beginning of the relevant fiscal year may only offset NOLs up to a maximum amount of 50% of the positive taxable base. When the company's turnover in the prior period is above €60 million, the limitation is 25% of the positive taxable base. This restriction is also extended to fiscal years beginning in 2014 and 2015.
  • The amortization of goodwill and certain IP (intangible property) assets, which is generally allowed at an annual 5% and 10% maximum rate, has been reduced to 1% and 2%, respectively. The reduction continues to apply in financial years starting in 2014 and 2015.

Corporate income tax amendments

Suppression of the worthless stock deduction

Through 1 January 2013, the Spanish corporate income tax Law provided for a worthless stock deduction regime under which Spanish companies could deduct losses corresponding to the decline in value of the shares in an entity belonging to the same group via a book-to-tax adjustment. This regime has now been abolished, effective 1 January 2013.

Prior year deductions must generally be recaptured and become taxable when the subsidiary regains value or when the subsidiary distributes dividends, if such dividend is recorded as income for accounting purposes.

Losses from the transfer of foreign subsidiaries

With effect from 1 January 2013, limitations are introduced to the amount of losses derived from the transfer of shares in foreign subsidiaries which may be taken for tax purposes. In essence, only losses exceeding dividends received from the relevant subsidiary from 2009 onwards, the distribution of which had not reduced the acquisition cost of the participation itself and had either benefitted from the Spanish participation exemption regime or entitled the Spanish shareholder to a tax credit for the foreign tax on such dividend income, may now be taken for tax purposes.

Losses from foreign permanent establishments

Prior to 1 January 2013, losses incurred by foreign permanent establishments were tax deductible in Spain at the level of the head office, subject to recapture if the permanent establishment thereafter generated profits.

The legislation now in force provides that losses incurred by a foreign permanent establishment are not tax deductible by the Spanish head office, except where the permanent establishment is transferred or closed down. Even in these cases, the losses which may be taken by the head office must be reduced in an amount equal to the profit from the foreign permanent establishment that has either benefitted from the branch participation exemption or entitled the Spanish shareholder to a tax credit for the foreign tax on such income.

Transitory provisions set forth that where the Spanish head office has deducted a loss from a foreign permanent establishment before 1 January 2013, positive income from such permanent establishment is taxable up to an amount equal to the loss formerly taken for tax purposes. The excess may still benefit from the branch participation exemption or foreign tax credit where the relevant requirements are met.

Foreign tax credit rules applicable to dividend income derived from non-Spanish subsidiaries

As of 1 January 2013, dividends received from non-Spanish tax resident subsidiaries which are not considered as income following accounting rules and thus are not included in the taxable base of the Spanish company, may also benefit from the foreign tax credit. It is necessary for these purposes that the taxpayer proves that such dividends were subject to tax in Spain upon a previous transfer of the participation in the relevant subsidiary.

Similarly, if a Spanish holding company derives dividend income from a foreign subsidiary and the dividend distribution results in an accounting loss due to an impairment in value, the dividend income will not be included in the Spanish company's taxable base. However, the Spanish company may still apply the foreign tax credit if it can evidence that an amount equivalent to the dividends has already been taxed in Spain upon a prior transfer of the shares in the relevant subsidiary.


The extension of the temporary measures to 2014 and 2015 is in line with the intention of the Spanish Government to maintain the level of tax collection from the Spanish large taxpayers under the current adverse economic and financial situation.

Spanish companies having foreign permanent establishments which are in a profit-making situation should review their previous years' results in order to ensure that the respective limitations aimed at preventing dual utilization of losses are respected.

As for the suppression of the worthless stock deduction, Spanish companies which have foreign subsidiaries which have depreciated their portfolio since 2008 should review the tax treatment which was applied to such a decrease in value, in order to ensure that the measures above are correctly implemented.

In summary, the extension of the temporary measures as well as approval of new ones require careful analysis on a case-by-case basis in order to ensure those are respected and correctly applied by the relevant taxpayer.

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
Ernst & Young LLP, Spanish Tax Desk, New York
  • Cristina de la Haba
    +1 212 773 8692

EYG no. CM3932