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Tax Connect Flash | Spain introduces modifications in its Corporate Income Tax legislation

On March 30, 2012, the Spanish government enacted Royal Decree-Law 12/2012, which introduces, generally effective already fiscal year 2012, a series of new tax measures aimed at reducing the budget deficit.

The most relevant modifications introduced in the Corporate Income Tax (CIT) area are briefly described herein below. To be also highlighted that some of the amendments do have however a temporary application.

A more detailed analysis on the particularities of these changes coupled with a preliminary constructive assessment of the practical effects of the areas that would most impact multinational groups in Spain will follow subsequently. Significant legitimate tax planning actions should nevertheless be considered on a case-by-case basis.


  • Decrease from 5% to 1% of the maximum annual depreciation rate of goodwill that has a tax impact, i.e. goodwill derived from the acquisition of a business or intangible assets, and, goodwill arisen on restructuring transactions (merger financial goodwill). The above mentioned maximum annual depreciation rate is a temporary tax measure that will only be applicable for fiscal years starting on 2012 and 2013.
  • Elimination of the “free depreciation” of assets tax incentive, as of 31 March, 2012 (a transitory regime applies for assets acquired before the entering into force of this law). However, this tax incentive would be maintained for SME provided the employee level is maintained by the company.
  • Introduction of new interest deduction limitations: With retroactive effects as of January 1, 2012, the old thin capitalization rule is replaced by an earnings stripping rule. The new rule applies, essentially, as follows: - The deduction of financial expenses is capped to 30% of the EBITDA. - Notwithstanding the above, expenses up to EUR 1 million will be deductible in any case. - Interest not deducted may be carry forward up to 18 years. Moreover, if in a given FY, interest expenses do not reach 30% of EBITDA, the difference between the interest deducted and the said threshold can be carry forward, being added to the said threshold during the subsequent five years (i.e. 30% EBITDA cap may therefore be increased).
  • Also as of January 1, 2012, interest expenses derived from intra-group financing to acquire shares/participations of any kind of entities will not be tax deductible unless the existence of sound business reasons behind the transaction is duly evidenced. This new anti-abuse rule also applies when the funds loaned are subsequently contributed as equity to other group companies.
  • The minimum advance CIT payments for companies with a turnover exceeding EUR 20 million is modified for FY starting on 2012 and 2013 in the following way: - An 8% rate on the accounting profit applies to large-sized companies (although NOLs may be factored in); or - A reduced 4% rate applies in case at least 85% of the total income obtained by the taxpayer derives from certain types of exempt income such as qualifying foreign source dividends; - In any case, reduced rates (4%/2%) apply to the first CIT payment on account to be filed on April 20, 2012.
  • Use of tax credits is further capped: For FY 2012 and 2013, the maximum amount of deductible tax credits that may be applied jointly is decreased from 35% to 25% (including the reinvestment tax credit). Moreover, and exclusively for R&D tax credits that exceed 10% of the tax due, the limit is decreased from 60% to 50%.
  • Requirements to apply the participation exemption (PEX) to capital gains have been softened, particularly when some of the relevant conditions are not met during each and every tax year (the old “all or nothing” rule has been replaced by a proportional rule).
  • 8% reduced CIT rate for tax haven dividends or capital gains repatriated to Spain (provided certain conditions are met). This sort of “tax amnesty” will only be of application during 2012.
  • "Tax amnesty" for undeclared income. A special charge 10% shall be applicable to the aflourishment of non previously declared income related to the following taxes: Personal Income Tax, Corporate Income Tax and Non Resident Income Tax. The objective of this new rule is to regularize the tax situation for those taxpayers that had (unduly) not declared all their income/assets before this new legislation comes into force. The charge of 10% shall apply to the value of the aflorished assets or rights. The amnesty requires filing a special return before the deadline established on the next November 30th of 2012. Where such return is filed, no penalties, interests or surcharges shall be due. The nature of this declaration is voluntary and the Ministry of Economy will approve the corresponding form and further rules on this matter. Until such development, it is not expected that any returns are filed. There are many open matters relative to the amnesty which are unclear, e.g. Way to identify the assets or rights, VAT implications, third party implications, etc.


Víctor HernánPartner - CMS Albiñana & Suárez de Lezo