Spain: Recent tax reforms: time to review your structure?

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Spain: Recent tax reforms: time to review your structure?

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Vicente Bootello


Alvaro de la Cueva

Recent months have seen a flurry of activity by the Spanish government in the tax area. On the one hand, as we have pointed out in earlier articles, various tax laws are being amended; on the other, Spain is renegotiating, one by one, the longest standing tax treaties, some of which are with major trading partners. In particular, the most relevant reforms recently approved include the following:

  • Effective for tax periods beginning on or after January 1 2012, thin capitalisation rules have been eliminated and a new rule has been introduced to limit net finance costs.

  • And for FY 2012 to FY 2015:

  • Rules regulating tax prepayments have been changed, with a view to accelerating the collection of corporate income tax.

  • Restrictions have been imposed on the limitation of tax losses.

  • Limitations have been introduced on the deductibility of goodwill disclosed on business acquisitions (1% is deductible per year, versus 5% previously) and on the deductibility of intangibles (2% instead of 10%).

At the time of writing this piece, the elimination of the deductibility of impairment losses on interests in the capital or equity of subsidiaries (Spanish or foreign) is on the verge of being approved, as is the elimination of the deductibility of losses incurred abroad through permanent establishments or unincorporated joint ventures.

Also, in recent months several tax treaties signed by Spain have been the subject of renegotiation:

  • Germany (applicable since January 1 2013): the dividend withholding tax rate is limited to 5% under certain conditions (being 15% in other cases); withholding tax on interest and royalties has been eliminated; and a provision on the taxation of gains on the disposal of shares in real estate companies (not envisaged in the previous treaty) has been inserted, as has a provision on limitation of treaty benefits.

  • UK (in the process of being ratified): under certain circumstances, withholding tax is eliminated on dividends, interest and royalties, while the taxation of gains on the disposal of shares in real estate companies is now envisaged.

  • US: in January 2013, a new protocol to the 1990 tax treaty was signed eliminating, under certain circumstances, (i) withholding tax on dividends, interest and royalties and (ii) taxation on gains on the sale of shares (except in the case of real estate companies), but inserting a new provision limiting treaty benefits.

  • Other tax treaties under negotiation: the Spanish tax authorities are negotiating some others, with the Netherlands in particular.

As a result of all these new developments, some of the investment and financing structures in Spain, or through Spain in third countries, that were tax efficient in years past may no longer be so. This is why it would perhaps be advisable to review such schemes to see if they are still fit for purpose as regards the business and investment objectives envisaged originally.

Vicente Bootello (vicente.bootello@garrigues.com) and Alvaro de la Cueva (alvaro.de.la.cueva@garrigues.com)

Garrigues Taxand

Tel: +34 91 514 52 00

Website: www.garrigues.com

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