Spain: Retrospective application of Spanish horizontal and indirect tax consolidation? Food for thought

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Spain: Retrospective application of Spanish horizontal and indirect tax consolidation? Food for thought

Blanco-Abigail-100

Abigail Blanco

The 2015 corporate income tax reform package has made considerable changes to the rules on companies that can be consolidated. Many of these stem from the European Court of Justice (ECJ) judgment dated June 12 2014, on joined cases C39/13 to C41/13.

In these cases, the ECJ concluded, in relation to the Netherlands law on corporation tax, that the legislation of a member state is contrary to the freedom of establishment principle if it prevents both:

  • a resident parent company from being able to form a single tax entity with resident sub-subsidiaries controlled by intermediate subsidiaries resident in another member state (while allowing this if the intermediate subsidiaries are resident in the Netherlands); and

  • a number of resident subsidiaries controlled by a parent company resident in another member state from being consolidated for tax purposes (while allowing this if the common parent company is resident in the Netherlands).

The recent Spanish reform, however, has gone significantly over-and-above the ECJ's instructions by introducing 'horizontal consolidation' (among resident 'sisters' owned by a non-resident parent company) and 'indirect consolidation' (where the resident parent company's ownership of the resident subsidiaries is obtained through non-resident intermediate subsidiaries) for groups in which the non-resident (parent or intermediate) companies are not resident in the European Union.

In cases of indirect consolidation it even allows the intermediate ownership interests to be held through companies resident in tax havens or through companies not meeting other requirements to be included in a tax group – that they must not be involved in an insolvency proceeding or subject to different tax rates to the parent company or representative, for example.

It turned out that the tax reform in Spanish law entered into force, in the wording of the new Spanish Corporate Income Tax Law, for tax periods that commenced on or after January 1 2015, whereas the ECJ judgment did not place any timing restrictions on its effects. Consequently, consideration may be given to the possibility that the companies that were not able to consolidate until 2015 may claim from the Spanish tax authorities the effects of consolidation from earlier periods, where consolidation could not be applied because of the restrictions on the companies that could be consolidated in Spain before the reform (rather than as a result of a company decision).

This possibility poses a host of issues including, for example, the effect that failure to meet the formal requirements to be consolidated may have, such as the express resolutions to be consolidated, or the impact of the statute of limitations (what happens if a tax credit generated in a statute-barred period is still in a period when it can be used?).

The advantages of consolidation for tax purposes should not be overlooked when deciding whether or not to commence the procedure for correcting self-assessments. It must be recalled in this sense, for example, that in consolidation for tax purposes, losses are automatically offset against income for the fiscal year among the various group companies; or that the group's losses carried forward for offset may be used unrestrictedly in the group whereas those generated by new companies to the group before they were consolidated may only be offset if that company generates income while it is part of the group. The same happens with the tax credits generated in the group or pre-consolidation.

All these comments provide food for thought to analyse whether consideration should be given to horizontal and indirect consolidation with retroactive effects.

Abigail Blanco (abigail.blanco@garrigues.com)
Garrigues Madrid

Website: www.garriges.com

more across site & shared bottom lb ros

More from across our site

Heads of tax need to push their teams forward as strategic business advisers to add value across the organisation, says Sandy Markwick
Scott Bessent reportedly felt undermined by Musk naming Gary Shapley as acting IRS commissioner; in other news, Baker Tilly will combine with a top 15 US firm
The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Australia’s conservative opposition will repeal controversial tax agent reporting rules if elected in the country’s May general election
Shapley would be the fourth person to hold the job this year; in other news, UK tax advisory firm MHA raised fewer funds than expected from its London IPO
The US needs to be involved in pillar one for there to be more international acceptance of the project, Michael Masciangelo says
The UK regulator is investigating EY’s auditing of the national postal service as it relates to the high-profile Horizon scandal, which saw hundreds wrongfully convicted
Gift this article