Global Tax Alert | 3 July 2013

Spanish tax authorities issue relevant interpretation regarding the portfolio provision

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The Spanish tax authorities recently issued several binding rulings regarding the Spanish portfolio provision regime, ruling that this regime is mandatory. The general consequences of these rulings are summarized below.

The portfolio provision

For tax years starting on or after 1 January 2008, Spanish Corporate Income Tax Law allows Spanish companies to take a portfolio provision to reflect the loss in value suffered by their subsidiaries for tax purposes. The Spanish entity (“the holding entity”) may take the loss accrued by its subsidiary/ies, even where no impairment is recorded for accounting purposes. As the calculation of the expense that is allowed for tax purposes does not follow the rules set out under Spanish GAAP, this is done by means of a book-to-tax adjustment and, when the subsidiary regains its value, the adjustment is reversed and accordingly taxed.

With respect to non-Spanish subsidiaries, the deduction is available for both operating losses and losses due to a fluctuation of foreign currency.

The Spanish tax authorities have recently issued several extremely relevant rulings on this matter. In brief, the tax authorities' position is that the loss in respect of a subsidiary must be taken for tax purposes by the Spanish holding entity in the year where the impairment arises and, where this is not done, cannot be taken when the subsidiary is transferred (at a loss) or liquidated. Further, in a ruling published in late June, the tax authorities explicitly state that when a subsidiary re-appreciates, the “reversal” of the adjustment is a taxable event, and must be added back to the tax base through a positive book-to-tax adjustment, even where the expense was not previously taken for tax purposes.

The tax authorities' position is that when the transfer, liquidation or the recovery of the subsidiary's value occurs, the taxpayer should re-file the earlier tax return and claim the expense. There are arguments against this interpretation and, perhaps more importantly, the consequences are unclear if the events take place when the year in which the expense should have been taken is statute-barred. For entities with a calendar tax year, the corporate income tax return for 2008 will generally become statute-barred on 27 July 2013.


Spanish holding entities should assess if their tax returns filed for tax years 2008 onwards adequately reflect the mandatory portfolio provision.

If the subsidiaries have suffered a loss of value and this has not been reflected in the Spanish entity's tax return, they should re-evaluate the consequences in light of the recent rulings from the tax authorities. In the case of entities with a calendar tax year, it is important to note that the assessment should be done before the 2008 corporate income tax return is statute-barred, which will generally occur on 27 July 2013.

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

Ernst & Young Abogados, Madrid
  • Laura Ezquerra
    +34 91 5727 570
  • Alfonso Puyol
    +34 91 5725 010
Ernst & Young LLP, Spanish Tax Desk, New York
  • Inigo Alonso Salcedo
    +1 212 773 8692

EYG no. CM3593