Contributed By Allen & Overy LLP (Madrid)
Spain has a civil or continental law system, which is mainly based on Roman tradition. In contrast to common law systems, the foremost source of law in Spain is legislation, while case law is used for interpretative purposes.
According to the Civil Code, Spanish law sources are law, custom and general legal principles.
The Parliament (Cortes Generales) exercises the legislative power of the State and comprises two Houses:
Although the Parliament concentrates the legislative power of the State, legal provisions in Spain do not emanate solely from the Parliament. At a supranational level, the European Union enacts Regulations and Directives that apply to all Member States; at a regional level, various competences are transferred to the parliaments of the Autonomous Communities, which legislate on those matters.
Justice is administered by the judges and magistrates of the Judiciary as a single body, independent from the executive and the legislative powers. The Supreme Court is on the top of the Judiciary and has jurisdiction throughout Spain, being the highest court in civil, criminal, contentious-administrative and labour matters. Matters related to constitutional rights and guarantees come under the exclusive competence of the Constitutional Court. The Supreme Court is the only court with the authority to set the proper interpretation of law through the creation of case law, when issuing two rulings following the same criteria in equal matters (or one if issued in the Plenary Session).
Although not one of the sources of law, case law makes a binding interpretation of Spanish sources of law and complements the legal system by means of opinions repeatedly handed down by the Supreme Court in its construction and application of written laws, customs and the general legal principles. Indeed, for a correct interpretation of laws, it is necessary to take into consideration the relevant interpretation of case law by the Supreme Court since it is a key part of the backbone of the Spanish legal system.
Spanish regulation on this matter is mainly contained in Law 19/2003 of 4 July on the legal regime of capital movements and foreign economic transactions (Law 19/2003) and Royal Decree 664/1999 of 23 April on external investments (RD 664/1999), which sets out the full freedom of capital movements and investment recognised by the Treaty on European Union (the Maastricht Treaty) and is still in force.
According to RD 664/1999, Spanish or foreign non-residents in Spain, whose main residence is abroad, legal entities with a residence in a foreign country and foreign public entities can hold foreign investments in Spain. Therefore, restrictions on foreign investment do not affect locally incorporated companies that are controlled by a foreign company.
As a general rule, M&A transactions carried out by foreign investors are not subject to any significant restrictions in Spain. However, RD 664/1999 states that any investments that are directly related to national defence (ie, the manufacture or trade of weapons, ammunition, explosives and war materials), public order, national security or public health need authorisation from the Council of Ministers, regardless of the stake acquired.
There are other restrictions in the banking and investment services, insurance, energy, air transportation, telecommunications, radio and television, and gambling sectors, and in industries relating to raw materials, minerals of strategic interest and mining rights. In some cases, restrictions are only aimed at non-EU investors, whilst in other cases the restrictions address all investors – Spanish, EU or non-EU. Moreover, depending on the sector, the foreign investment may require previous authorisation or notification, in which case specific sectorial legislation must be observed.
Within this liberalised system for foreign investments, RD 664/1999 establishes that an ex-post Statement of Foreign Investments must be filed to inform the Ministry of Industry, Trade and Tourism of such operations. This declaration of investments has administrative, economic and statistical purposes. An ex-ante declaration is also required for certain investments coming from or going to territories or countries classified by Spanish regulation (Royal Decree 1080/1991 of 5 July) as tax havens.
From a European Union perspective, the legal framework for foreign investments has changed significantly with the publication of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (the FDI Regulation). This Regulation will apply to transactions from 11 October 2020, and aims to align the position and control systems of the Member States with regard to foreign direct investment with the mechanisms already in place in the Union's main trading partners. It must be noted that it does not authorise the Commission or any other Union’s body or agency to suspend or block foreign investment into the European Union, although the Commission can issue non-binding opinions on certain operations.
Member States remain primarily responsible for screening foreign direct investment in their own territory in accordance with national legislation, although the regulation lays down certain minimum requirements to be incorporated into national control processes (where adopted), including transparency obligations, the rule of equal treatment among foreign countries, obligations of confidentiality and the obligation to ensure adequate possibilities of appeal against decisions adopted under these review mechanisms. Member States without a review mechanism will not be under an obligation to adopt one, but it seems likely that the FDI Regulation will lead to additional regimes being adopted. Those States that have such a mechanism in place, or that choose to adopt one, will have to ensure that it complies with a number of basic substantive and procedural requirements. The key principles set out in the FDI Regulation are:
In addition, Member States with a screening mechanism in place must ensure that it cannot be circumvented by foreign investors.
The FDI Regulation also aims to increase co-operation between Member States and with the Commission about certain foreign investments that fall within its scope, providing for co-operation and information-sharing mechanisms between them. It also imposes an obligation on Member States to submit annual reports on foreign direct investment taking place in their territory.
According to RD 664/1999, foreign investment in Spain does not generally require approval, except for those sectors mentioned above. However, foreign investors (including EU investors) in Spanish companies must notify the Spanish Ministry of Industry, Trade and Tourism through the appropriate official form, regardless of the size of the acquired stake. This notification is filed for statistical purposes only.
Following the investment (within a one-month term), either the investor itself or the notary public if one has intervened in the transaction shall notify the investment to the authorities. However, the following specific rules apply:
If the investor is located in a tax haven, an ex-ante notice shall also be sent (without prejudice to the above described notice), except for investments in listed securities and investment funds, and when the foreign stake does not exceed 50% of the share capital of the Spanish company.
Law 19/2003 lays down a disciplinary regime for non-compliance with this procedure. Infringements listed in the law include investing in forbidden sectors or investing without authorisation, and not informing of the investments or informing untruthfully, with sanctions up to the economic volume of the operations performed illegally.
There are no specific commitments required from foreign investors, other than those required for investors located in tax havens, as well as the aforementioned restrictions in regulated sectors.
The cases in which authorisation is required are very limited. However, in case of refusal, an appeal may be filed in the relevant administrative body (which may vary depending on the relevant sectorial applicable regulations). Final administrative decisions are subject to appeal and can be challenged in court. Scope and timing will vary, taking into account which judicial body or court is competent, which depends on the specific sector involved.
Spanish law foresees several types of legal entities that can be used as investment vehicles, with the most common being private limited companies (sociedades de responsabilidad limitada or SLs). A second type of limited liability company is the public limited company (sociedad anónima or SA).
Other forms of legal entities, such as collective partnerships or sociedades colectivas, and limited liability partnerships or sociedades comanditarias, are used more rarely. A variation of collective partnerships – the so-called economic interest grouping (agrupación de interés económico) – is used in certain specific areas for structuring purposes. Finally, temporary unions of companies (uniones temporales de empresas) have been used traditionally as consortium vehicles without separate legal personality, in particular to participate in public procurement.
In addition, foreign entities can operate in Spain through a branch (sucursal), which is not a separate legal entity but is placed on the record with the Commercial Registry. Branches are particularly common in the financial services and insurance industries.
SAs and SLs: Similarities and Differences
SLs and SAs are governed by the same legislation (the Spanish Companies Act or Ley de Sociedades de Capital), and are both separate legal entities with limited liability. The Spanish Companies Act (and, traditionally, Spanish corporate law) envisages the SL as a closed company, based on a sort of trust among partners, while the SA is a larger, open corporation that may seek financing in the markets.
There is no legal minimum number of shareholders or partners for either SAs or SLs. In addition, any SL or SA (except listed companies and certain regulated entities) has flexibility to choose from among the different types of governing bodies (sole director, joint directors, joint and several directors or a board of directors with a minimum of three members). Both individuals and legal persons can be appointed directors (in the latter case, with an individual representative).
The most significant differences between the two types of companies are as follows:
When incorporating a new SL or SA in Spain, the following steps must be followed:
Under the Spanish anti-money laundering regulations, a separate notarial document needs to be granted declaring whether the company has ultimate beneficial owners (ie, individuals holding at least 25% of its share capital, directly or indirectly).
The public deed will be filed with the tax authorities (600 form) and the relevant Commercial Registry. The Registry will have a maximum term of 15 business days to fully register the deed (unless it appreciates any defect, which may delay the process).
The whole process of incorporating a Spanish limited liability company takes approximately three weeks or one month from receipt of the original powers of attorney, provided there are no complications.
It is also possible to acquire already incorporated companies from service providers (“shelf companies”), which expedites the process of setting up a new business to some extent.
The Spanish Companies Act includes several ongoing reporting disclosure obligations for private companies.
Financial statements: the annual accounts of a Spanish company must be drawn up by the management body within three months of the end of its financial year, and must be approved by shareholders within six months of such date. The approved annual accounts must be filed with the relevant Commercial Registry. Failure to comply with this obligation may lead to closure of the Commercial Registry’s sheet (hoja registral) for that particular company.
Sole shareholder status: if either an SL or an SA has a single shareholder, a public deed declaring the identity of the sole shareholder needs to be granted and placed on record with the Commercial Registry.
There are several other acts that also need to be registered with the Commercial Registry, including the granting, amendment and revocation of general powers of attorney, and other corporate resolutions, such as amendments of the by-laws, share capital increases and reductions, and appointments and dismissals of directors, secretaries, liquidators and auditors.
Once on record with the Commercial Registry, all of the above information is directly and publicly available to any interested third party (through a request to the relevant Registry and subject to a cost).
Spanish companies have further obligations to keep certain corporate books updated, including:
These books are not directly accessible by the public, although there is an obligation to send encrypted copies to the Commercial Registry regularly.
Finally, a Spanish company will need to disclose its ultimate beneficial owner (by means of a separate deed of declaration) whenever appearing before notaries public and, in practice, when performing other business acts like opening bank accounts. This deed is not filed with the Commercial Registry and is not directly or publicly available.
A Spanish company may be governed by one of the following bodies, to be appointed by the shareholders:
Irrespective of its form, the governing body can grant powers of attorney to other individuals, whether of a general nature (which need to be filed with the Commercial Registry) or for specific acts. Having the right governing body and powers of attorney structure in place is essential for the day-to-day business of the company, particularly when the members of the board of directors are not residents in Spain.
Shareholders in Spanish capital companies (SLs and SAs) have limited liability, meaning they will only be liable for contributing the amount committed to the company’s share capital, and cannot generally be held accountable for the company’s debt or liabilities.
The main exceptions to this general rule are as follows:
The Spanish Companies Act contains broad regulation regarding directors’ duties and liability. Directors’ main duties under Spanish law are the duty of diligence and the duty of loyalty. These are generic duties, which are then broken down into more specific obligations – ie, information, avoidance of conflict of interest or duty of secrecy, among others. These duties must be observed by each director, with any non-compliance leaving the breaching director potentially subject to liabilities.
In this regard, directors may generally incur civil liability in cases of negligence, criminal sanctions (mostly relating to fraud), and insolvency liability (only when the insolvency of the company is or could be found to be the director's fault, and provided the company's assets are considered insufficient to settle all debts).
In connection with this, the Spanish Companies Act provides for two types of actions that may be brought specifically against directors for acts carried out in breach of law, the bylaws or the duties inherent to their office, provided that there has been wilful misconduct or negligence:
Finally, the Spanish Companies Act makes directors liable if the company has incurred losses reducing its net worth (patrimonio neto) below half its share capital, in which case a shareholders' meeting must be called within two months. If the shareholders' meeting does not resolve the situation, directors have the obligation to request a judicial winding-up. Should the directors fail to comply with this duty, they will be held jointly and severally liable for all the company's debts and obligations arising after the occurrence of the event necessitating such meeting.
Directors’ liability extends to the so-called “de facto” directors (ie, individuals who are not legally directors but in practice control the management of the company) and, when no managing director is appointed, to the first executive.
The rights and obligations concerning employment relationships are regulated by:
Case law also plays a very significant role in Spanish employment matters.
There are different types of employment contract, depending on the form, duration and nature of the relationship. Employment relationships can also be distinguished by the number of working hours to be rendered by the employees (part-time employment contracts or full-time employment contracts).
Form of the Employment Contract
Under Spanish employment law, the principle of freedom of form applies to employment contracts, so they may be entered into either verbally or in written form. Verbal employment contracts are considered to be indefinite.
When a written employment contract is not formalised, the employer is required to notify the relevant employee in writing of the statutory minimum content of the employment contract if said employee requests it.
However, the following employment contracts must always be in writing:
Duration of the Employment Contract
The general rule is that all employment contracts are of indefinite duration; it is only possible to enter into temporary employment contracts when specific temporary legal required grounds exist.
The duration of the most commonly used temporary contracts in Spain are as follows:
Without prejudice to the duration of each temporary contract, Spanish law considers them to be indefinite if the same employee has been hired for more than 24 months within a period of 30 months.
There are also ordinary employment relationships and special employment relationships that apply to specific job positions or sectors (top executive contracts, lawyers, artists, etc).
The maximum working time is 40 hours per week on an annual average, although this may be reduced by the applicable CBA or employment contract.
As a general rule, daily work hours cannot exceed nine hours, unless a longer duration is regulated in the applicable CBA.
Both employers and employees have to comply with the minimum resting periods, as follows:
Companies are allowed to agree an irregular distribution of the working hours throughout the year with workers’ representatives.
The number of overtime hours may not exceed 80 per employee in a year, and the employee has to be compensated with rest periods or cash.
There are specific protected employees who cannot work overtime hours.
Under Spanish employment law, companies must register the daily working hours of each employee by setting out start and end times.
The termination of employment contracts is highly regulated in Spain. They may be terminated on the following grounds:
Different rules apply to each type of termination. The most important rules relating to termination at the will of the employer are summarised below.
This dismissal is based on the employee’s serious and wilful non-compliance with his/her contractual duties. Legal causes for dismissal are regulated in the Workers Statute and the applicable CBA.
Unless further requirements are set out in the applicable CBA or employment contract, the company will only have to provide the employee with a written letter of dismissal, also indicating the date of effect (no notice period is required).
If the dismissal is duly justified and declared fair, the employee is not entitled to severance.
If the affected employee is an employee legal representative or a union delegate, an alternative procedure (expediente contradictorio) shall be followed.
Objective terminations can be based on the following grounds:
Written communication providing a detailed description of the grounds is required, and 15 days’ statutory notice or a longer period must be served to the employee or be paid. Likewise, on the date of communication the employer has to provide compensation of 20 days’ salary per year worked, up to a maximum of 12 months.
A copy of the communication must be provided to the employees’ representative.
Qualification of individual dismissals
A dismissed employee can take the case to the labour courts, challenging the grounds or process followed.
The termination can be considered fair, unfair, or null and void, as follows:
This is when a company terminates employment contracts on the basis of economic, technical, organisational or production if, within a period of 90 days, such measure affects:
However, according to the latest case law, including the case law of the European Court of Justice, a collective dismissal will also arise where the number of redundancies within a single work centre affects:
Grounds justifying collective dismissal
The decision to collectively dismiss must be based on economic, technical, organisational or production grounds.
Qualifying economic grounds exist when there are current or foreseen losses or a persistent decrease in the level of income or sales. The performance of the group as a whole is also relevant if the group could be considered to act as a single employer.
Technical grounds apply when there are changes in the scope, means or instruments of production; organisational grounds apply whenever there is a change in the scope of the working systems and methods of the staff, or in the way production is structured; and productive grounds exist whenever there are changes in the demand for the products or services which the company is offering in the market.
Collective dismissals must follow a complex statutory procedure, the main aspects of which are as follows:
In any case, there must be a minimum term of 30 days between the starting of the negotiating period/date of the communication to the labour authority and the date of effect of the redundancy.
The minimum severance is 20 days’ salary per year of service up to a maximum of 12 months’ salary, but the final amount of the severance is negotiated during the consultancy period and is usually increased by companies to moderate the risk of litigation.
Other obligations to be included in the Social Plan include an outplacement programme if the redundancy affects more than 50 employees, special Social Security contributions for employees aged 55 and above, and contributions to the Public Treasury for affected employees aged 50 or above.
Qualification of collective dismissals
Collective dismissals can be challenged collectively by workers’ representatives on the basis that the grounds argued by the company to justify the dismissal do not exist; the formal process was not followed; or the decision was reached after wilful coercion, fraud or abuse of law. Normally, the workers’ representatives only file a claim against collective dismissal if the negotiation period is concluded without an agreement.
The judgment would render the company’s decision fair, not according to law or null and void when the legal process has not been followed, or when the company’s decision has been taken in breach of fundamental rights or public liberties or wilful coercion, fraud or abuse of law. In this case, the employer has to readmit all the affected employees and pay them the procedural salaries.
Groups Specially Protected Against Dismissals
The following groups of employees are specially protected against dismissal:
Spanish law and courts are very protective towards these employees, and dismissals affecting them are presumed to be against the fundamental rights of the employee, unless otherwise evidenced by the company.
There is a dual representation system in Spain, comprising unitary representation composed of works council/personal delegates, and trade union representation.
It is not compulsory to have employees’ representatives appointed; this is a right of the employees and trade unions, who may decide whether or not to exercise their right to elect and appoint representatives.
Types of Workers’ Representatives
Unitary representation represents all the employees of a work centre or company.
Individual delegates may be appointed in companies or work centres with more than ten employees and fewer than 50.
A works council may be appointed in work centres with 50 or more employees.
Elections can be promoted by the most representative trade unions, by a trade union with a minimum of 10% representation in the company, or by employees of the work centre (by majority agreement) and following a specific procedure.
Trade union representation
This representation only applies to those employees who are affiliated to the specific union. The trade unions have the right to designate union delegates where the minimum workforce threshold is met (250 employees).
Information and Consultation Obligations
Employees’ representatives must be informed or consulted on a wide number of employment matters, even to issue a non-binding report. The main such matters are as follows:
Rights and Guarantees
Employee representatives have the following rights and guarantees:
An individual who is tax resident in Spain is liable to Personal Income Tax (PIT) (Impuesto sobre la Renta de las Personas Físicas) in respect of his worldwide income and capital gains. Employment income comprises any consideration or benefits in cash or in kind that arise directly or indirectly from the taxpayer rendering services, and does not constitute business or professional income (eg, public servants, employees, pensioners in general, directors, managers, etc).
Generally, employment income is fully taxable, although specific reductions for non-periodical long-term income may apply, subject to certain requirements and limitations. Only very limited specific expenses are deductible for tax purposes (such as social security contributions and bar fees, amongst others).
Finally, the taxable base is determined by applying the relevant employment allowances and personal reductions based on personal and familiar situations.
Employment income is included in general income (which is the aggregate of employment income, income from immovable capital, business income and capital gains, including the positive or negative capital gains that are not deemed to be savings income). Note that the savings income comprises both income from movable capital (dividends, interest and monetary return or payment in kind on life or disability insurance contracts) and positive or negative capital gains that arise on transfers of assets.
The general income base (where the employment income is included) is taxed at progressive rates, ranging from 19% to 45%.
The employer should make the appropriate withholding on account of PIT and make the relevant payments to the Spanish Tax Authorities (STA), as appropriate.
Likewise, the employer must make social security contributions to the Social Security at the relevant appropriate rate, which is payable on the total monthly remuneration, up to a maximum monthly limit, which for 2019 is set at EUR4,070.10 per month.
Spanish Corporate Income Tax (CIT)
The net income obtained by Spanish resident entities (Spanish Companies) will be subject to CIT at the standard tax rate (currently 25%). The income obtained by Spanish Companies is calculated based on their accounting profit in accordance with generally accepted accounting principles (GAAPs). Generally, expenses incurred by Spanish Companies for the purposes of their business activity should be deductible (subject to specific limitations) when calculating their Spanish CIT liability. The main items of Spanish Companies’ deductible expenditure are as follows:
Spanish carry-forward tax losses (CFTLs) will be offsetable for up to 70% of the taxable profits of the Spanish Company in a given fiscal year. However, if the net turnover of the Spanish Company in the 12 months preceding the relevant fiscal year is between EUR20 million and EUR60 million, they will only be entitled to offset 50% of the taxable profit; if the net turnover is higher than EUR60 million, they will only be entitled to offset 25% of the taxable profit.
In any event, a minimum amount of EUR1 million is offsetable each year; however, no limitations should apply in the fiscal year when the Spanish Companies are liquidated (unless this is the result of a group restructuring transaction, such as a merger).
The STA are entitled to reassess Spanish CFTLs within the ten years following the due date of the corresponding Spanish CIT return. Therefore, Spanish Companies are required to prove that Spanish CFTLs that are intended to be offset are justified, as well as their amount, by means of the relevant Spanish CIT return and financial documents.
Spanish Domestic Participation Exemption
Dividends received by a Spanish entity are, in principle, subject to Spanish CIT (currently at 25%). However, if the payer and the recipient of the dividends belong to the same Spanish CIT Group, or if the requirements for the application of the Spanish Domestic Participation Exemption are met (namely, a stake of at least 5% or an acquisition cost higher than EUR20 million held for at least one year prior to the date in which the dividend becomes payable), the dividends paid will not be subject to Spanish CIT at the level of the recipient.
Spanish Withholding Tax (WHT) on Interest Payments
Generally, interest payments made by a Spanish company to a lender will be subject to Spanish WHT, at the general rate of 19%.
However, in certain cases no Spanish WHT may apply, depending on the tax residency status of the relevant lender and the fulfilment of the relevant tax certification requirements and conditions.
Repayment of the principal amount by the borrowers to the lender shall not be subject to Spanish WHT.
Spanish Value Added Tax (VAT)
VAT is a tax on general consumption, which is levied on all goods and services for consumption in Spain, whether of domestic or foreign origin.
Spanish Companies that perform VATable activities are considered entrepreneurs for Spanish VAT purposes and would charge Spanish VAT on their goods or services (the current general rate being 21%). Therefore, any Spanish VAT borne for goods or services acquired for such activities should be deductible for Spanish VAT purposes and, if applicable, recoverable from the STA.
Tax Relief for Place of Business Activity in Ceuta and Melilla
There is a 50% tax credit on CIT levied on income obtained in Ceuta and Melilla by entities that effectively and materially operate in these territories and carry out activities in these locations during a full business cycle, because of their specific geographic location.
A 25% tax credit can be used for expenses incurred from R&D activities in the tax period. An additional tax credit of 17% can be used for staff expenses incurred exclusively by employees carrying out R&D activities.
In addition, an 8% tax credit can be used for investments made in tangible fixed assets (excluding buildings and land) that are exclusively assigned to R&D activities.
Technological Innovation Credits
A 12% tax credit can be used for technological innovation activities.
Tax Credits for Film Productions and Live Performing Arts and Musical Shows
Investments in Spanish productions of feature films and audio-visual fiction, animation or documentary series that allow the production of physical copies prior to serial industrial production will entitle the producer to:
At least 50% of the tax credit base must correspond to expenses incurred within the Spanish territory. The tax credit may not exceed EUR3 million.
In addition, a territory requirement is introduced, and this tax relief may only be applied for productions carried out mainly in Spain.
Under the Spanish CIT consolidation rules, the Spanish CIT Group’s taxable base shall be calculated on a consolidated basis, which in practical terms implies that the positive results obtained by certain entities will be offset against the potential losses suffered by other entities.
Intra-group transactions will be disregarded on a consolidated basis (“eliminaciones”), and such eliminated transactions will need to be recaptured once the Spanish CIT Group is extinguished or once the relevant entity leaves the group.
Spanish interest deductibility limitation rules and limitation to the offset of CFTLs will apply at a Spanish CIT Group level. Interest payments or dividend distributions made between companies belonging to the Spanish CIT Group will not be subject to Spanish WTH.
Transactions carried out between related entities within the same Spanish CIT Group are subject to reduced compliance with the formal requirements regarding Spanish transfer pricing rules.
All the companies belonging to a Spanish CIT Group are jointly and severally liable for any Spanish CIT Group exposure (except penalties, in which case the dominant entity/Spanish tax representative is deemed as the tax offender) for the years in which such entities were taxed on a consolidated basis.
The Spanish Capitalisation Rules have been replaced by the general interest deductibility limitation rule (30% EBITDA), according to which net financial expenses derived from related and non-related financing (computed as the difference between financial income and financial expenses) will be deductible for Spanish CIT purposes up to 30% of the tax-adjusted operating profits (similar to EBITDA). In any event, net financial expenses will be deductible up to EUR1 million, per year. For Spanish CIT Groups, the EBITDA generated by the tax group should be taken into consideration, and the EUR1 million threshold applies for the entire tax group.
If the total amount of net financial expenses exceeds the 30% EBITDA threshold, the excess can be carried forward indefinitely, subject to the same limitations.
If net financial expenses fall below 30% of the tax-adjusted operating profits in a given fiscal year, such difference may be accumulated and added to the applicable limit within the following five fiscal years.
However, no limitations should apply in the fiscal year when a Spanish Company is liquidated (unless this is the result of a group restructuring transaction, such as a merger).
According to the Spanish transfer pricing rules, transactions between related parties (as defined in CIT legislation) must reflect arm’s length principles, and must be duly documented and supported by the appropriated transfer pricing documentation.
Therefore, all agreements entered into by related parties will need to duly comply with Spanish transfer pricing considerations, including the need to carry out a transfer pricing study confirming the terms and conditions thereof (except for transactions carried out between entities that belong to the same Spanish CIT Group).
Spanish Companies are also subject to specific Spanish transfer pricing documentation obligations.
As a general rule, the General Tax Law includes the two main Spanish General Anti Avoidance Rules (GAARs):
Therefore, under the conflict doctrine, the STA may challenge artificial transactions where valid business reasons do not exist, and that are primarily aimed at achieving only a tax benefit. It is mandatory for the STA to obtain a favourable report from an advisory committee in order to apply the conflict doctrine.
Spanish tax legislation also includes other specific anti-abuse rules (SAARs). For example:
Competition law is governed in Spain by the following legislation:
In Spain, an economic concentration shall be deemed to arise when a stable change in the control of the whole or part of one or more undertakings takes place. Such changes may result from the following:
The change of control on a lasting basis can also be the result of the acquisition of shares or assets, or of other legal means (such as entering into a shareholders' agreement, the modification of the articles of associations, etc) or factual situations (which leads to a de facto control).
The interpretation of “control” that the CNMC usually adopts tends to follow the principles of the EU merger control rules. In this regard, a company's ability to approve or veto the approval of the budget, the business plan or the appointment/dismissal of senior management, or to determine/veto major investments, are considered strategic decisions that could confer control over said company.
Article 8.1 of the Spanish Competition Act establishes that a concentration that does not have an “EU dimension” under the EU Merger Regulation shall be notified to the CNMC when:
Note that there exists a “de minimis” exception by means of which no notification is required where the Market Share Threshold is met but the following two cumulative conditions are also met:
It is not mandatory to hold pre-notification contacts in Spain, but it is highly advisable and in practice customary to enter into pre-notification contacts with the Directorate of Competition of the CNMC before submitting a formal notification.
Notifications may be done in Spain from the time there is a project or agreement leading to a concentration.
In addition to the potential pre-notification contacts, there are two phases in the CNMC review process:
If the CNMC prohibits the concentration or clears it subject to commitments or conditions, the Spanish Council of Ministers can intervene in the merging control procedure, after a formal request to do so by the Spanish Minister of Economy. In this scenario, the Spanish Council of Ministers can confirm the decision adopted by the Council of the CNMC, or it may modify it on the grounds of general interest other than the Competition Law. The Spanish Council of Ministers shall adopt a decision within one calendar month of receiving the Spanish Minister of Economy’s formal request.
According to Article 1 of the Spanish Competition Act, all agreements, decisions or collective recommendations, or concerted or consciously parallel practices, that have as their object, produce or may produce the effect of prevention, restriction or distortion of competition in all or part of the Spanish market are prohibited (such as the direct or indirect fixing of prices; the sharing of the market or sources of supply; etc).
For the purposes of the Spanish Competition Act, a cartel is any agreement or concerted practice between two or more competitors whose object is to co-ordinate their competitive behaviour on the market or to influence the parameters of competition through practices such as the fixing or co-ordination of purchase or selling prices or other trading conditions, including in relation to intellectual and industrial property rights; the allocation of production or sales quotas; or the sharing of markets and customers, including bid-rigging, restrictions on imports or exports, or measures against other anti-competitive competitors.
The applicable test to determine the basic legal framework (ie, Article 1 of the Spanish Competition Act and/or Article 101 of the Treaty on the Functioning of the European Union (TFEU)) is where the effects of the anti-competitive agreements and practices occurred.
According to the LCCNMC, the CNMC will be competent to apply:
According to Article 2 of the Spanish Competition Act, any abuse by one or more undertakings of their dominant position in all or part of the national market is prohibited (such as abuses that consist of the direct or indirect imposition of prices, the unjustified refusal to satisfy the demands to purchase products or the provision of services, etc).
The applicable test to determine the basic legal framework (ie, Article 2 of the Spanish Competition Act and/or Article 102 of the TFEU) is where the effects of the anti-competitive agreements and practices occurred.
According to the LCCNMC, the CNMC will be competent to apply:
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The need to amend the European data protection framework has been highlighted by the adoption of the General Data Protection Regulation (EU) 2016/679, of 27 April 2016. The GDPR has been fully applicable in Member States, including Spain, since 25 May 2018, and repeals Directive 95/46/EC with effect from that date.
It should be noted that data protection is now regulated not in a directive but in a regulation, which has a general scope and is mandatory in all its elements and directly applicable in each Member State.
In view of the GDPR, the Organic Law 3/2018, of 5 December, on the Protection of Personal Data and the guarantee of digital rights (Organic Law on Data Protection) was published in the Official Gazette on 6 December 2018, taking effect from 7 December 2018. The Organic Law on Data Protection repeals the previous Data Protection Law – ie, Organic Law 15/1999, of 13 December.
The position of the current Organic Law on Data Protection is therefore entirely new, as it does not develop the GDPR, but adapts Spanish Law to what it regulates. The purpose of the Organic Law on Data Protection is to adapt the Spanish legal system to the GDPR, and to complete its provisions.
The fundamental right of natural persons to the protection of personal data, protected by the Spanish Constitution, shall be exercised in accordance with the provisions of the GDPR, this Organic Law and its implementing provisions.
The Organic Law on Data Protection does not establish the geographical scope of its application. GDPR and/or other laws apply as follows:
The Organic Law on Data Protection sets out the existence of the following agencies in charge of enforcing data protection rules:
The AEPD is an independent administrative authority at state level, with legal personality and full public and private capacity, which acts with full independence from public authorities in the exercise of its tasks.
The AEPD is responsible for monitoring and enforcing the application of the Organic Law on Data Protection and the GDPR, and particularly for exercising within its territory the tasks established and the powers provided for in the GDPR and the Organic Law and its implementing provisions.
Such tasks include handling complaints lodged by a data subject, or by a body, organisation or association, and investigating, to the extent appropriate, the subject matter of the complaint and informing the complainant of the progress and the outcome of the investigation; and conducting investigations, including on the basis of information received from another supervisory authority or other public authority.
Investigative powers include the following:
Corrective powers include the following: