Corporate Tax 2023

Last Updated March 14, 2023

Spain

Law and Practice

Authors



RocaJunyent was established in 1996 and is one of the most prominent Spanish law firms. It has offices in Madrid, Barcelona and Gerona, as well as associated offices in Palma de Mallorca, Lérida, Tarragona, Málaga, Seville, Bilbao, Badajoz, Burgos and Valladolid. The firm offers advice in all areas of law, especially those related to commercial, banking and financial, procedural and tax law. RocaJunyent is the only Spanish member of the international network TerraLex. Taxes are levied on all kinds of entities and situations, which is why RocaJunyent’s tax department is prepared to respond to all kinds of problems – from large companies and their complex structures/operations to individual wealth/inheritance issues. The firm’s services include business taxation, tax wealth management, M&A, transactions taxation, transfer pricing and tax litigation.

Businesses in Spain are generally developed as corporate entities, of which the most common forms are:

  • joint stock companies (Sociedades Anónimas,or SA), requiring a minimum share capital of EUR60,000; and
  • limited liability companies (Sociedades Limitadas, or SL), requiring a minimum share capital of EUR3,000.

The responsibility of the shareholders is limited in both cases.

From a tax perspective, corporations ‒ including other types of commercial companies (not just SA or SL) – are usually subject to corporate income tax (CIT) regulations, which are levied on all legal entities resident in Spain. Certain entities can be exempt from CIT. This exemption applies mainly to public entities and certain income from non-profit organisations.

CIT rules are also applicable to non-corporations, such as partnerships or lying heritages, provided that they have a business purpose. In the event that they do not have a business purpose, their income will be allocated (transparently) to their partners or co-proprietors. This is also the case for economic interest groupings, where profits or losses are taxed at the level of their co-proprietors.

In certain circumstances, individuals carrying out business activities – although taxed under personal income tax (PIT) – are increasingly applying CIT rules when determining their business taxable income.

The most common types of transparent entities that are taxed under the income allocation regime (regimen de atribución de rentas) are civil partnerships without legal status or without commercial object.

The income allocation regime applies to the following entities:

  • communities of property;
  • lying heritages;
  • civil partnerships – although since 1 January 2016, the system only applies to:
    1. civil partnerships without legal status;
    2. civil partnerships with legal status that do not have a commercial object (ie, those engaged in agricultural activities, livestock activities, forestry activities, mining activities, and those of a professional nature subject to the law on professional societies);
  • any entity that, not having legal status, constitutes an economic unit or separate assets liable to taxation;
  • entities established abroad whose legal nature is identical or similar to that of entities attached to the income allocation regime constituted in accordance with Spanish law.

Moreover, the Spanish CIT Act provides for other special fiscal transparency regimes that are commonly adopted in particular business sectors.

Temporary Business Association

Under Spanish law, a Temporary Business Association (Unión Temporal de Empresas, or UTE) is a system of collaboration between companies for the purpose of carrying out a specific project or service for a specified or unspecified period of time.

The purpose of a UTE is business collaboration in order to achieve a result that, owing to its importance or volume, would be difficult to achieve by just one of the companies alone. In practice, UTEs are frequently used for the execution of public works (roads, recycling, etc) in which each company member of the UTE is specialised in a specific piece of machinery or special technology. This form of association is very common for engineering and construction projects, yet can be used in other sectors as well.

Economic Interest Grouping

The aim of an Economic Interest Grouping (Agrupación de Interés Económico, or AIE) is to allow companies to join forces where they have common interests, while continuing to preserve their ultimate independence.

The Economic Interest Grouping is a trading company whose sole purpose is to carry out an economic activity ancillary to that carried out by its members, who may be natural or legal persons engaged in business, agricultural or craft activities, non-profit entities engaged in research, or those exercising liberal professions.

It enables certain companies to carry out commercial activities that would be impossible to carry out on their own, such as market research, centralised purchasing, sales, information management or administrative services.

The Economic Interest Grouping does have its own legal personality and commercial character. However, it may not hold shares in companies that are members of the Economic Interest Grouping – nor may it directly or indirectly manage or control the activities of its members or third parties.

There are three tests for determining whether a company is resident for tax purposes in Spain:

  • the company was incorporated under Spanish law;
  • the registered office of the company is located in Spanish territory;
  • the place of effective management (ie, direction and control of the company’s activity) is located in Spanish territory.

If any of the foregoing requirements are met, the company can be considered resident in Spain.

Under certain conditions, Spanish tax authorities can assume that an entity located in a tax haven – or a country with no taxation – is a tax resident in Spain. In order for this assumption to be applicable, the main assets and rights of the entity must be (directly or indirectly) located in Spain or else its main activity must be carried out in Spain.

In the case of transparent entities (such as partnerships, taxation would depend on the partner’s residency. Spanish-resident partners are liable to pay tax in Spain on their share of the worldwide profits of the partnership. Non-resident partners are only liable to pay tax on profits that accrue in Spain.

The standard CIT tax rate is 25% and it applies to most companies – although there are other specific rates (23% as of 2023 for entities with a turnover of less than EUR10 million).

Special tax rates apply to certain activities – for example, banking, mining, oil and gas are subject to a 30% tax rate. Non-profit entities are subject to a 10% tax rate, whereas investment funds and undertakings for collective investment in transferable securities (UCITS) are taxed at 1%.

As of 2023, entities with a turnover of more than EUR15 million cannot apply tax credits to reduce current year tax below 15% (ie, minimum tax of 15% of the tax base).

There is a special 15% rate for newly created companies, which is applicable to the first tax period in which profit is obtained and the following period.

However, partnerships are transparent for corporate tax purposes, so that profits and losses are taxed at the partners’ level in proportion to their partnership interests.

The income of individuals who own a business (or are partners in a transparent partnership carrying out business) – whether generated by themselves or through the partnership – could be taxed at a maximum tax rate ranging from 45.5% to 50%, depending on the Autonomous Community of residence.

The taxable profit is the company’s gross income for the tax period, minus certain deductions. It is determined by the annual financial statements prepared in accordance with Spanish generally accepted accounting principles (SGAAP), as adjusted to certain statutory tax provisions. The tax authorities are legally authorised to modify accounting reports in order to determine taxable profit if they consider that the accounting reports have not been calculated according to the SGAAP.

All necessary expenses and costs connected to producing income may be deducted from gross income in order to arrive at a taxable income determination. Additionally, the Spanish CIT Law provides for certain items that are never deductible (permanent differences, such as penalties and participation exemption) or are deductible in a different year (timing differences, such as differences between accounting depreciation and tax depreciation).

There is currently a patent box system in Spain. In this respect, a partial exemption can be applied to the income obtained by entities from the transfer of the right to use or exploit certain assets (eg, patents, utility models, registered advanced software, and complementary certificates for the protection of medicines, phytosanitary products and legally protected designs) that have been generated by the entity’s R&D and technological innovation activities. This partial exemption can amount to a maximum of 60% of the income and can also be applied to capital gains generated from the transfer of the above-mentioned assets to third parties. In the event that the transaction is carried out between related parties, the partial exemption will not apply.

Furthermore, a tax credit is available for R&D activities. The tax credit for carrying out R&D activities will be 25% of the R&D expenses incurred in the tax year and, if these expenses are higher than those incurred for the same concept in the two previous tax years, the deduction will be up to 42% of these expenses. In addition, the companies may apply a tax credit of 17% of the amount of the personnel costs for qualified researchers assigned exclusively to R&D activities. There is also a tax credit of 8% on investments in fixed assets used exclusively for these activities. However, the tax credit for technological innovation activities will be 12% of the expenses incurred in the tax year related to this concept.

Spain has several tax incentives for the production and financing of movies and TV series that are totally or partially shot in Spain. The incentive could amount to EUR20 million (EUR10 million in the case of TV series).

The tax credit provided for these activities will be 40% of the total cost of production, as well as the costs of obtaining copies and the costs of advertising and promotion to be borne by the producer of the movie – provided that more than 50% of the cost of production corresponds to expenses incurred in Spanish territory.

Tax losses may be carried forward indefinitely, although any deduction is limited to 70% of the positive taxable income before the application of the tax benefit for the capitalisation reserve and other specific items. Tax losses of at least EUR1 million can always be offset without limitation.

There are additional limitations for large companies and tax groups. When their turnover in the 12 months prior to the commencement of the taxable period reaches:

  • EUR20 million – the offsetting of tax losses cannot exceed 50% of the yearly taxable income before the capitalisation reserve and tax losses are offset; and
  • EUR60 million – the offsetting of tax losses cannot exceed 25% of the yearly taxable income before the capitalisation reserve and tax losses are offset.

Additionally, as of 2023, offset of current year tax losses obtained by a company in a tax group against tax profits of other entities in the group cannot exceed 50% of such losses.

The CIT Law provides anti-avoidance rules to prevent tax losses being utilised when there is a change in control.

As a general anti-avoidance rule, interest paid to a group entity incurred in order to acquire shares (when the seller is another group entity) or to increase equity interests in other group members is wholly non-deductible – ie, tainted financial expenses – unless the operation might pass a business-purpose test.

The remaining net finance cost (ie, the net amount of financial income and cost, excluding the above-mentioned tainted financial expenses) is deductible up to an amount equal to 30% of the operating profit. The definition of operating profit in accounting is similar to EBITDA, minus the effect of:

  • the amortisation of fixed assets;
  • the subsidies for non-financial fixed assets and others; and
  • the depreciation for impairment of fixed assets, as well as the gains or losses derived from the transfer of fixed assets.

The resulting amount should be increased with dividends derived from entities when the stake represents at least 5% of their share capital. This rule will not apply to dividends from subsidiaries that have been acquired from other companies of the group, with group debts generating the tainted non-deductible financial expenses referred to previously.

A net financial cost greater than 30% of the operating profit could be carried forward and deducted in the following tax years (with no term limitation), within the same limit of 30% of the annual operating profit. Conversely, if the net financial cost is below 30% of operating profit (eg, capacity excess), such excess of capacity may be carried forward to deduct more financial cost in the following five years.

The aforementioned limitation (30% of the operating profit) does not apply when:

  • the net financial cost does not exceed EUR1 million;
  • the borrower is either an insurance or financial entity; or
  • in the case of entities belonging to a tax unit or tax consolidation group, all these calculations (net financial cost, operating profit, etc) would be referred to the whole tax group.

The Spanish CIT Law allows Spanish tax-resident companies and Spanish permanent establishments (PEs) belonging to a Spanish or multinational group to be taxed as a single group and, therefore, apply a special tax-consolidation regime for CIT purposes.

In order to apply this regime, the main requirements are as follows:

  • the Spanish companies should be owned – directly or indirectly – by the same parent company (either resident or non-resident);
  • the parent company (either resident or non-resident) of the tax group must hold a direct or indirect minimum holding of 75% (70% for quoted companies) and the majority of voting rights in the Spanish companies must belong to the group;
  • the above-mentioned participation should be maintained throughout the whole taxable period; and
  • the parent company cannot be tax-resident in a tax haven.

The tax consolidation regime follows a number of basic rules. The taxable income results from the sum of all the taxable incomes of each Spanish tax-resident company in the tax group, adjusted as outlined in the following points:

  • current tax losses of any of the companies in the tax group can be offset against any company’s current tax profits but, as of 2023, only up to 50% of such losses;
  • tax profits (other than intra-group dividends) generated from intra-group transactions are deferred and are only included in the consolidated taxable income when:
    1. they are carried out with third parties;
    2. one of the intra-group companies that is part of the transaction ceases to form part of the group; and
    3. the consolidation regime is no longer applied;
  • specific limitations apply concerning the offsetting of tax losses or the application of tax credits generated by the group companies before they formed part of the tax group or joined the group; and
  • no withholding applies on payments made at intra-group level.

Capital gains are normally classed as ordinary income taxable at the standard CIT rate (generally, 25%) during the tax period in which they arise.

However, a 95% participation exemption currently applies to capital gains arising from the transfer of shares (either of resident or foreign entities) when at least a 5% participation is held for an interrupted period of at least one year, the transferred entity is an operating entity, and certain other requirements are met.

In the case of a foreign subsidiary, an additional condition is required. In order for the exemption to apply, the foreign subsidiary should have been effectively subject to (and not exempt from) a tax similar to CIT at a nominal rate of at least 10% in each and every year of holding the stake. This requirement is understood to be met when a tax treaty is applicable and it includes an exchange of information clause.

Capital losses from shares that could benefit from the participation exemption are not tax-allowed, unless they come from liquidation (subject to certain conditions).

Depending on the nature of the operations carried out by the businesses, the following taxes may be payable by an incorporated business on a transaction.

Value Added Tax

Spanish VAT regulation implements the EU directives on VAT. In Spain, VAT is levied on:

  • the supply of goods and services provided by entrepreneurs and professionals;
  • intra-community acquisitions; and
  • the import of goods into Spain.

The concept of entrepreneurs and professionals encompasses a large number of assumptions, but basically refers to those persons (physical or legal) who carry out business or professional activities – ie, activities that involve the commissioning of material and/or human means of production on their own behalf to intervene in the production or distribution of goods or services.

The territory in which the tax applies is the Iberian Peninsula and the Balearic Islands. In the Canary Islands, Ceuta and Melilla, other indirect taxes are applied – respectively, the Canaries General Indirect Tax (Impuesto General Indirecto de Canarias, or IGIC) and the Tax on Production, Services and Imports (Impuesto sobre la Producción, los Servicios y la Importación, or IPSI). The IGIC operates in a similar way to VAT, albeit with some differences when it comes to exemptions. Conversely, the IPSI is a basic sales tax.

There are three different rates of VAT:

  • 21% (general rate applied to regular deliveries of goods and services);
  • 10% (reduced rate applied to basic needs); and
  • 4% (super-reduced rate applied to basic needs other than those classified in the reduced rate).

In order to mitigate inflation, the following special VAT rates apply (on a temporary basis):

  • 5% for oil and pasta;
  • 5% for electricity; and
  • 0% for milk, bread, eggs, cheese, cereals, bread-making flour, fruits and vegetables.

The ordinary rate of the IGIC is 7%. The other rates are 0%, 3%, 9.5%, 15% and 20%.

Property Transfer Tax

Property Transfer Tax (Transmisiones Patrimoniales Onerosas, or TPO) applies to the transfer of goods and rights when the transferor is a private individual. It also applies to real estate transfers and real estate leases when the seller is an entrepreneur, but the transfer is either exempt from or beyond the scope of VAT.

The transfer of shares is exempt from both VAT and TPO. However, when the transfer is aimed at dissimulating the transfer of real estate owned by the company, the actual taxation of transfer of real estate is applied.

TPO tax rates are as follows:

  • 6% for the transfer of real estate (as well as for the establishment and transfer of rights in rem over the real estate);
  • 4% in the case of the transfer of movable property and livestock; and
  • 1% in the case of establishment of rights in rem of guarantee, pensions, bonds or loans.

The aforementioned rates may change from one region to another, as regional authorities have competence to increase those tax rates.

Tax on Certain Digital Services

The Tax on Certain Digital Services (known as the “Google Tax”) is an indirect tax that applies to the provision of certain digital services involving users located in Spain. This tax applies to companies with a worldwide turnover of more than EUR750 million and to Spanish income of more than EUR3 million.

The tax rate amounts to 3% of income resulting from rendering digital services as defined in the law. The taxable persons are the companies that provide digital services as defined in the law and that exceed the above-mentioned thresholds.

Tax on Financial Transactions

The Tax on Financial Transactions (TFT) is an indirect tax that applies to the acquisition of shares in traded Spanish companies when they have a market capitalisation above EUR1 billion on December 1st of the year prior to the acquisition.

There are numerous cases of exemption, including:

  • acquisition of shares issued in the primary market;
  • acquisition of shares acquired as a result of the execution of a takeover bid;
  • acquisition of shares derived from transactions between entities of the same group;
  • acquisition of shares carried out within an operation to which the Special Regime for Mergers applies (Chapter VII of Title VII of the CIT Law);
  • acquisitions in treasury stock; and
  • acquisitions in execution of a stock option plan by employees.

The tax rate amounts to 0.2% of the consideration paid exclusively for the shares, not including the expenses related to the transaction. The taxable person is the intermediary acting in the operation.

Stamp Tax

Stamp tax (document duties and registration fees) is levied on notarial instruments and records documenting transactions that need to be registered in public registries. The tax rates range from 0.5% to 1.5% of the operation value.

Tax on the Increase in the Value of Urban Land

The tax on the increase in value of urban land is a local tax applied on a voluntary basis (its application is not mandatory) by local councils. This tax applies when urban real estate is transferred and there is a gain for the transferor.

Tax On Non-reusable Plastic Packaging

As of January 2023, a new tax on non-reusable packaging has entered into force in Spain. This tax will be due on imports and intra-community acquisitions, for an amount of EUR0.45 per kilogram of non-recycled plastic in the non-reusable packaging.

Incorporated businesses are also subject to the following notable taxes.

Tax on Economic Activities

The Tax on Economic Activities (Impuesto sobre las Actividades Económicas, or IAE) is a direct tax of a real nature. The IAE’s taxable event is constituted by the mere exercise – on Spanish territory – of business, professional or artistic activities, whether or not they are carried out in specific local premises and whether or not they are specified in the tax rates.

Local Property Tax

The Local Property Tax (Impuesto sobre Bienes Inmuebles, or IBI) is a direct municipal tax on the value of real estate. It is periodic, real, and mandatory in all councils. The rate of taxation will vary depending on the city council, ranging from 0.3% to 1.1% of the cadastral value.

Most closely held local businesses operate in corporate form in order to be taxable by the CIT and to separate liabilities between the company and its holders.

In order to prevent individual professionals from carrying out very personal activities through companies to avoid the application of personal income tax rates, the Spanish tax authorities use the rules for piercing the corporate veil and qualify transactions to ensure that they are actually carried out by individuals and not by the company.

There is no specific rule in Spain to prevent corporations from accumulating earnings for investment purposes. In fact, in order to encourage entities to increase their own funds, Spanish CIT provides for the capitalisation reserve. This tax relief involves companies increasing their own funds, which entails a lower distribution of dividends to shareholders in exchange for lower taxation.

Entities that are taxed under the general tax rate can apply a special reduction to their positive taxable base in an amount equal to 10% of the increase in its net equity. The following conditions must be met in order to apply this reduction:

  • there must be an increase in the entity’s net equity that must be maintained during a five-year period; and
  • a reserve for the amount of the reduction must be booked separately in the account balance and should be recorded as restricted reserves for at least a period of five years.

However, this reduction cannot exceed 10% of the entity’s positive taxable base prior to certain adjustments. The excess over the aforementioned limit can be carried forward for application in the following two years.

Dividends paid by closely held corporations are taxed as income from movable capital for Personal Income Tax (PIT) purposes.

Conversely, the sale of shares may produce a capital gain for the individual. This capital gain is calculated as the difference between the transfer value and the acquisition value. Regarding the transfer value, this will be the higher of these two values:

  • the value of the net worth corresponding to the transferred securities resulting from the balance sheet corresponding to the last fiscal year closed prior to the date of accrual of the PIT; or
  • the result of capitalising at the rate of 20% the average of the results of the three fiscal years closed prior to the date of accrual of the PIT.

Both dividends and capital gains form part of the savings base of the PIT, which is taxed on the basis of a tax-rate scale of between 19% and 28%, depending on the amount of the savings base (from EUR0 to more than EUR300,000).

Individuals are taxed on dividends and capital gains from the sale of shares in publicly traded corporations on the same basis as that previously explained for closely held corporations in 3.1 Closely Held Local Businesses. The only difference concerns the calculation of the capital gain. In the case of publicly traded corporations, this is determined by the difference between the transfer value and the acquisition value – ie, the transfer value of the list value at the time of the transfer.

If no double-tax treaty applies, or a limit of taxation is not envisaged in the relevant double-tax treaty, payments made by a Spanish taxpayer to a non-resident entity will be subject to withholding tax in Spain at the following general rates:

  • 19% on dividends and interest; and
  • 19% on royalties paid to residents in the EU, Iceland and Norway (and 24% in all other cases).

For the application of a reduced rate or one of the exemptions described here, the taxpayer must be in possession of a tax-residence certificate issued by the tax authorities of the country of the recipient.

Domestic Law Exclusions or Exemptions

Dividends

According to the domestic law, dividends paid by a subsidiary to its EU parent company are exempt from withholdings when:

  • the parent company holds at least a minimum of 5% in the Spanish subsidiary and the interest in the Spanish subsidiary has been held for at least one year before the dividend distribution (or will be held, up to completing the one-year period);
  • both the entity paying the dividends and the beneficial owner are subject to and not exempt from one of the corporate taxes mentioned in Article 2(c) of the Council Directive 2011/96/EU of 30 June 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different member states (the “Parent–Subsidiary Directive”);
  • the payment is not the consequence of the liquidation of the subsidiary; and
  • both the entity paying the dividends and the beneficial owner have one of the legal forms listed in the Annexes to the Parent–Subsidiary Directive.

This exemption will not be applicable where the majority of voting rights of the receiving entity is directly or indirectly owned by non-residents in the EU, unless it is proven that the incorporation of the receiving entity is based on valid economic reasons and sound business reasons.

Interest

Interest paid to an EU resident is exempt from withholding. This exemption does not apply when the recipient is tax-resident in a tax haven.

Royalties

Royalties paid in an EU member state are exempt from withholding when the following requirements are met:

  • both the entity paying royalties and the beneficial owner have one of the legal forms listed in the Annexes to the Council Directive 2003/49/EC of 3 June 2003;
  • both the entity paying royalties and the beneficial owner are subject to and not exempt from one of the corporate taxes mentioned in Article 3(a)(iii) to the Council Directive 2003/49/EC of 3 June 2003; and
  • both entities are resident in the EU and neither of them is resident in a third country with a double-taxation agreement (DTA).

In addition, both entities must be associated companies – ie, one has a direct minimum holding of 25% in the capital of the other or else a third company has a direct minimum holding of 25% in the capital of both entities. In the latter case, this holding should be held for a minimum holding period of one year, which could be completed after the payment. The entity that receives those royalties should receive them for its own benefit and not as an intermediary (eg, an agent, trustee or authorised signatory) for some other person. If the recipient is a permanent establishment (PE), the received royalties should effectively be connected with the PE’s activity and should be a taxable income for the PE.

This exemption on royalties will not apply if the majority of voting rights of the receiving entity is directly or indirectly owned by a non-resident in the EU – unless it is proven that the receiving entity was incorporated on the basis of valid economic reasons and sound business reasons.

Currently, Spain has entered into double-taxation treaties with more than 90 countries – the main aim of which is to eliminate double taxation and provide for reduced rates of withholding taxes of dividends, interests and royalties. Double-taxation treaties concluded by Spain are generally compliant with the provisions set forth by the OECD.

Due to the favourable taxation of EU corporations, most foreign investors invest via EU member states. Luxembourg and the Netherlands are the primary tax-treaty countries used by foreign investors to make investments.

The use of treaty-country entities by non-treaty country residents may be challenged by the Spanish Tax Agency, based on the argument that the recipient is not the beneficial owner of the relevant income. This approach is supported both by the OECD Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (the “Multilateral Instrument”, or MLI) and the jurisprudence of the ECJ.

The General Guidelines of the 2022 and 2023 Annual Tax and Customs Control Plan approved by the Spanish Tax Agency establishes as a priority area of attention the verification of the correct declaration of the withholdings applied to dividends, interest and royalties paid to non-residents. Likewise, it will be checked whether the recipient of this income is the beneficial owner in order to verify that there is no abuse of the EU regulations aimed at facilitating free movement of capital within the territory of the EU.

In line with the SGAPP, the CIT Act clearly specifies that controlled transactions carried out by related parties must be valued on an arm’s-length basis. In this sense, the burden of proof falls upon the taxpayer, who must provide documentation to prove to the tax authority that the values applied in the transactions with related parties comply with the principle of valuation at fair market value or on an arm’s-length basis.

In recent years, the Tax Control Plan published by the tax authorities includes transfer pricing as one of the essential points for attention in the review of multinational groups – especially operations carried out with high-value intangibles, intra-group services, corporate restructurings and intra-group financing operations.

In Spain, tax authorities usually check transfer pricing during the normal course of CIT tax audits, rather than conducting specific transfer pricing audits. These CIT tax audits are mainly oriented towards understanding the role of the Spanish companies under scrutiny in the group’s value chain in order to check the consistency of the transfer pricing methods applied and the results of the benchmark analysis. These audits are also designed to detect and regularise the PEs of non-resident entities – an issue that may arise in certain operating structures of multinational groups, such as contracts for the provision of marketing, agencies, commissionaires, and similar services. Therefore, the review of transfer pricing policies not only covers the quantification of operations, but also the structure of the operations (and their different tax effects).

Spanish authorities challenge the use of related-party limited risk distribution arrangements – especially when there has been a change to the transfer pricing model and, as a consequence of which, the Spanish entity has reduced its taxable base.

One significant point on which the Spanish transfer pricing regulations differ from the OECD Guidelines for Multinational Enterprises (the “OECD Guidelines”) is their broader parameters for related or associated parties. This requires the preparation of documentation and the application of transfer pricing principles to operations that would not be regarded as related operations in other countries.

The use of mutual agreement procedures (MAPs) in Spain has increased in the past years. International transfer pricing disputes are, in some cases, resolved through a MAP. According to the statistics published at the end of 2020 by the OECD, more than 530 MAPs had taken place since January 2016. Around 315 of these MAPs were transfer pricing cases. Generally, the Spanish tax authorities are open to MAPs and willing to co-operate in these procedures.

If a transfer pricing adjustment is made by the tax authorities, they are obliged to execute the relevant bilateral adjustment to the counterparty in the transaction – provided that it is a Spanish company.

Whenever a MAP is filed, any transfer pricing claim is suspended (in exchange for a warranty) until its final resolution. If the solution offered at the end of the MAP procedure is accepted, the claim will be withdrawn. Otherwise, if the MAP resolution is not accepted, the premium tax credit (PTC) can be successfully continued until its final resolution.

There are no significant differences between the taxation of local branches (PEs) and local subsidiaries of non-local corporations. However, the following items in the tax regime applicable to a local branch of a foreign corporation should be considered:

  • application of the rules for related-parties’ transactions to operations carried out by the PE with the head office;
  • deductibility of the management and general administrative expenses charged by the head office to the PE if these are included in the accounting statements of the PE and charged on a regular basis in accordance with rational principles; and
  • payments made to the head office for royalties, interest, commissions and technical assistance services – or for the use or transfer of goods or rights – are generally not deductible.

Non-residents’ capital gains on the sale of stock in local corporations are normally considered as ordinary income, taxable at the rate of 19% during the tax period in which they arise.

However, domestic law provides several exemptions, including on capital gains obtained without a PE in Spain by a resident in another member state of the EU or European Economic Area (EEA) Agreement if there is an effective exchange of tax information. The exemption does not apply to capital gains arising from the sale of stocks in the following cases:

  • when the assets of that entity are mainly – directly or indirectly – real estate situated in Spanish territory;
  • when individuals have directly or indirectly held at least 25% of the capital or assets of the entity at any time during the 12 months prior to the sale;
  • when the sale does not satisfy the requirements for the application of the exemption under Article 21 of the CIT Law in the case of non-resident entities (see 6.3 Taxation on Dividends from Foreign Subsidiaries).

Nevertheless, according to the DTAs, taxation of these gains normally corresponds exclusively to the state of residence and they are exempt in Spain. However, when it comes to stocks or shares in real estate entities, many DTAs contain exceptions that allow taxation in the state where the real estate is located. Therefore, in order to determine the taxation of non-residents’ capital gains on the sale of shares, it is necessary to analyse the applicable DTAs.

The change of control resulting from the disposal of an indirect holding should not generate taxable income under the CIT Act. In this respect, Spanish law provides anti-abuse rules that seek to eliminate the tax impact of losses arising from the disposal of shareholdings in the event of a change of control of some companies. See also 5.3 Capital Gains of Non-residents with regard to the taxation of non-residents’ capital gains on the sale of stock in a Spanish entity.

In general terms, Spanish tax law follows the criteria set out in the OECD Guidelines. Therefore, apart from the arm’s-length principle, no specific formulas are used to determine the income of foreign-owned local affiliates selling goods or providing services.

There are no specific rules to determine the proportion of common expenses that a non-local affiliate must re-invoice to the local affiliates. As a consequence, the calculation of the expenses chargeable to the local affiliates must be made on an arm’s-length basis and according to a reasonable criterion.

Once the proportion has been calculated based on the aforementioned criteria, there are no specific rules regarding the deductibility. Therefore, the management and administrative expenses incurred by a non-local affiliate will be deductible if they are ordinary costs of the local affiliates’ productive activity and they have been calculated in accordance with arm’s-length principles.

There are no specific rules applicable to related-party borrowing. However, as with any other related-party transaction, it is necessary to obey the arm’s-length principle.

For that reason, local affiliates are not allowed to grant interest-free loans or a loan at below-market interest rates. In addition, the deductibility of interest expenses is subject to the interest limitation rule, as explained in 2.5 Imposed Limits on Deduction of Interest.

The CIT regulations subject resident companies to taxation on all their worldwide income, regardless of the country of source. However, profits obtained abroad through a PE located outside Spanish territory will be exempt from taxation when it has been subject to (and is not exempt from) a tax similar to CIT at a nominal rate of at least 10% under the terms of Article 21 of the CIT Law (see 6.3 Taxation on Dividends from Foreign Subsidiaries). Losses incurred by a PE abroad will immediately cease to be tax-deductible, unless they are due to the PE finally ceasing activity and under certain circumstances.

The profits exempted by application of the process described in 6.1 Foreign Income of Local Corporations are calculated by attributing to the PE all the income and expenses associated with it, together with the part of the common expenses that is allocated to it. Consequently, local expenses attributable to the PE are deductible in Spain if they comply with the general deductibility requirements.

In accordance with the provisions of Article 21 of the CIT Law, dividends obtained by Spanish entities from foreign subsidiaries may be 95% exempt from taxation under the current participation exemption regime. Foreign subsidiaries dividends will be generally 95% exempt when either of the following conditions are met:

  • the recipient owns at least 5% of the distributing entity; or
  • that stake has at least one year’s seniority (the one-year seniority could be fulfilled afterwards).

In the case of a foreign subsidiary, an additional condition is required. In order for the exemption to apply, the foreign subsidiary should be effectively subject to (and not exempt from) a similar tax to CIT at a nominal rate of at least 10%. This requirement is understood to be met when a tax treaty is applicable and it includes an exchange-of-information clause.

Furthermore, capital gains resulting from the sale of shares – in both Spanish and foreign entities – would generally be generally 95% exempt from taxation when requirements for participation exemptions are fulfilled. In the case of the sale of foreign subsidiaries, the minimum taxation requirement must be met during all the years in which the participation has been held. Specific requirements are demanded in the case of indirect participation through a holding entity.

Transactions between related parties are subject to the arm’s-length principle. This principle requires that transactions should be valued at fair value and should satisfy the obligations under transfer pricing rules. Consequently, the local corporation must recognise income arising from the transfer of intangibles that is taxable according to the local corporation’s CIT regime. However, any such income from the use of intangibles may benefit from the regime described in 2.2 Special Incentives for Technology Investments.

According to Spanish law, a foreign company is considered a controlled foreign corporation (CFC) when 50% or more of its equity, capital, profits or voting rights is controlled directly or indirectly by Spanish shareholders. A foreign company is also considered a CFC if the CIT paid by that company is less than 75% of the CIT that would have been paid in Spain.

Under the Spanish CFC rules, the following income must be allocated to the Spanish companies:

  • income obtained by foreign subsidiaries without material or personal resources (substance); or
  • passive income (eg, property, shares, insurance and loans) obtained by foreign subsidiaries.

It should be noted that the CFC rules do not apply to companies or PEs resident in the EU or in a state that is part of the EEA Agreement if it can be proved that they carry out a business activity or they are collective investment institutions (CIIs) regulated in EU Directive 2009/65/CE.

With effect from 2021, the scope of the CFC rules applies to dividends and capital gains obtained by foreign holding companies that have held at least a 5% stake in foreign operating subsidiaries for more than one year.

Although Spanish law does not contain any rules relating to the substance of non-local affiliates, the interpretative approach adopted by the Spanish tax authorities – following the OECD Guidelines and EU jurisprudence – is to require an examination of the economic substance.

Consequently, in order to determine the application of the tax advantages envisaged in a specific DTA, not only is the identity of the formal owner of the income ascertained – so too is the identity of the person who actually receives the income from an economic perspective. This means analysing both the form and the substance of the transaction in order to determine whether the person applying for the DTA advantages is the beneficial owner of the income.

Accordingly, the criterion followed by the Spanish tax authorities requires that a structure in which a non-local affiliate is interposed be designed for commercial and economic purposes. Otherwise, the situation should be regularised. This means that any tax advantage obtained should be eliminated and the DTA between Spain and the country of residence of the interposed non-local affiliate will no longer apply.

Capital gains accrued by the Spanish entity on the sale of shares in non-resident subsidiaries could qualify for the 95% exemption envisaged in Article 21 of the CIT Law (see 6.3 Taxation on Dividends from Foreign Subsidiaries). Capital losses from shares that could benefit from the participation exemption are not tax-allowed unless they come from liquidation (with certain requirements).

In order to enable the Spanish tax authorities to tackle situations in which a taxpayer artificially avoids the payment of taxes, the Spanish General Tax Law provides the following General Anti-Avoidance Rules (GAAR):

  • the substance over form or requalification rule;
  • the rule for conflicts in the application of the law; and
  • the rules for simulated schemes.

According to the Anti-Tax Avoidance Directive (ATAD), EU member states must implement a GAAR. However, Spain already had such a rule, meaning that there was no need to introduce a new rule. Therefore, no modification was required.

Additionally, the Spanish legislation has numerous Specific Anti-Avoidance Rules (SAAR), of which the most frequently applied are:

  • the transfer pricing anti-avoidance rule;
  • the limitation of financial interest paid to group entities’ deductibility;
  • the anti-abuse rule for mergers, spin-offs and the exchange of shares;
  • the rule for preventing the transfer of companies with carry-forward tax losses; and
  • the rules preventing hybrid mismatches.

The Spanish Tax Agency has long applied the GAAR to re-characterise transactions in accordance with the underlying substance or to disregard operations when they are believed to lack genuine commercial reasons other than tax reasons. Spanish courts have also applied an “economic substance” or “business purpose” (qualification principle) doctrine to disregard transactions that have no appreciable effect on the taxpayer other than the reduction of income taxes.

The application of the GAAR is commonly litigated, given that its application requires many subjective considerations and the Spanish Tax Agency’s position is not always followed by courts. When the GAAR is applied, no penalties can be imposed for taxpayers and the tax claim is limited to avoided taxes and late-payment interest.

Furthermore, following the BEPS Action 6 Report and the ratification of the MLI, most Spanish DTAs would incorporate the Principal Purpose Test (PPT) clause.

Companies that are required to have their accounts audited must annually provide the auditors with all the information necessary to carry out the aforementioned audit.

An audit of accounts consists of an exhaustive review of the financial statements of a company, with the aim of accrediting the reasonableness of the veracity and reliability of its content to third parties.

According to the provisions of the Spanish Law on Corporations, the obligation to audit the accounts applies only to companies that exceed – for two consecutive years at year-end – two of the following three parameters:

  • the total amount of asset items exceeds EUR2.85 million;
  • the total amount of its annual turnover exceeds EUR5.7 million; or
  • the company has a workforce of more than 50 employees.

The main recommendations resulting from the BEPS Actions, developed by the OECD/G20 Base Erosion and Profit Sharing Project (BEPS), have been already implemented – with only a few exceptions in areas where there has yet to be a consensus (ie, the digital economy).

In fact, Spain is one of those countries where OECD conventions and guidelines are directly applicable when compatible with domestic legislation – given that it declares Spanish CIT must be interpreted based on OECD principles.

The main principles of BEPS have been implemented as follows.

  • BEPS Action 2 – the Spanish CIT regime was amended during 2021 and 2022, thereby introducing ATAD II regulations that follow BEPS principles with regard to hybrid mismatches.
  • BEPS Action 3 – the Spanish CFC regime was amended in accordance with BEPS principles in 2021.
  • BEPS Action 4 – before BEPS, Spain had already implemented interest-stripping rules that limit allowed interests (in excess of EUR1 million) to 30% of EBITDA (EUR1 million threshold).
  • BEPS Action 5 – Spain has strengthened mechanisms for exchanging advance pricing agreements and advance tax rulings among all EU countries and some OECD countries.
  • BEPS Action 6 – Spanish courts have traditionally rejected the application of DTAs in the case of abusive structures aimed at “treaty shopping” (ie, the attempt by a person to access indirectly the benefits of a tax agreement between two jurisdictions without being a resident of one of those jurisdictions). Furthermore, DTAs concluded after BEPS (eg, with China and Japan) already included provisions to prevent the abusive use of DTAs. Finally, Spain accepting the MLI would affect existing DTAs in this sense.
  • BEPS Action 7 – Spain’s approach to PEs has been traditionally ahead of even the more aggressive OECD and EU countries. Hence, a BEPS-style approach towards PEs has been applied in Spain, even before BEPS. Furthermore, as a result of the MLI, Spanish DTAs are even more aligned with BEPS principles.
  • BEPS Actions 8, 9 and 10 – before the BEPS initiative, Spain had already declared directly applicable transfer pricing guidelines and principles approved by the OECD.
  • BEPS Action 12 – as an EU member state, Spain implemented DAC 6 (Council Directive (EU) 2018/822), which introduced aggressive tax-planning reporting obligations on EU member states and third parties. In 2023 the Supreme Court approved a precautionary measure whereby tax advisors and lawyers will not be subject to DAC 6 while the court is analysing whether DAC6 violates professional secret duty.
  • BEPS Action 13 – Spain applied the Country-by-Country (CbC) reporting requirements very quickly.
  • BEPS Action 14 – Spain is committed to making ADR mechanisms more effective, not only because (as an EU member state) it is obliged to apply arbitration mechanisms within EU territory, but also because (as a signatory of the MLI) any EU member state may find that most DTAs end up featuring alternative mechanisms to correct double-taxation scenarios.
  • BEPS Action 15 – Spain has ratified the MLI, which will enter into force during 2023 and may affect 88 of the nearly 94 double-taxation agreements signed by Spain.

Spain is also participating in the work resulting from the OECD Inclusive Framework, which aims to establish Global Anti-Base Erosion (GloBE) rules and an Undertaxed Payments Rule (UTPR) that would likely result in the implementation of a minimum taxation level for large multinational enterprises (MNEs) before the end of 2023.

In March 2023 Spanish Tax Agency published a draft of the GloBE directive proposal.

Overall, Spanish tax authorities are extremely supportive of the OECD’s tax-related works where there is a large consensus. It has been the case for the OECD–BEPS outcome but also for the launch of Pillar 2 of the OECD Inclusive Framework. It is worth mentioning that, as a member state of the EU, Spain has a legal obligation to implement EU Directives that are fully aligned with OECD initiatives.

Recent economic crises and the COVID-19 pandemic resulted in a public deficit increase, which has drawn special attention to MNE taxation and harmful profit-shifting practices. Spanish authorities have become more committed to tackling tax avoidance. This situation is boosting the implementation of BEPS and similar international recommendations.

Spain’s current administration is more focused on artificially fighting profit-shifting than attracting investments by means of tax competition. Spain relies on the premise that a common approach to taxation (across Europe and beyond) would lead to a more accurate allocation of profits and taxes, based on economic factors other than taxes.

Legal uncertainty has usually been the Achilles heel of the Spanish tax system, given that special tax regimes have frequently been frustrated owing to aggressive interpretation by tax-inspector bodies. Thus, trying to gain legal certainty is a must when it comes to tax-planning investment in Spain.

The Spanish CIT regime has been amended during 2021 to implement the EU Directive preventing hybrid mismatches. As such, the new Spanish tax system is a perfect implementation of the ATAD II EU Directive (Council Directive (EU) 2017/952) (the “ATAD II”).

Spain does not have a territorial tax regime. Only Spanish branches of foreign companies are taxed exclusively for Spanish-sourced income. Interest-stripping rules would hardly promote investments in Spain.

As previously mentioned in 9.7 Territorial Tax Regime, Spain does not have a territorial tax system. However, as of 1995, it does have CFC rules. These have been modified slightly to adapt them to OECD–BEPS outcomes and to the ATAD II.

There is a high consensus in CFC rules resulting from the OECD. However, on the basis of a recent cut to the participation exemption, CFC rules in Spain could create unwanted double taxation if a Spanish company controls another foreign holding company whose participation exemption is more generous than the Spanish one.

Spain approving the MLI places a broad limitation on tax benefits resulting from DTAs where it is reasonable to conclude – in light of all facts and circumstances – that obtaining such benefit was the main purpose of the transactions. This limitation, together with the existing GAAR, would make artificial inbound or outbound tax structures easy to challenge for the Spanish Tax Agency. Hence, it becomes critical to gather a defence file justifying the business grounds for any tax structure.

Transfer pricing rules in Spain were already very detailed and broad. Consequently, almost no changes have been introduced after BEPS, apart from the CbC reporting requirements.

For financial years starting after 22 June 2024, CbC reports must be made public by companies belonging to a group with a total worldwide turnover of more than EUR750 million.

Spain supports all internationally accepted reporting requirements, such as CbC reporting or aggressive tax-planning resulting from the EU Council Directive 2011/16 in relation to cross-border tax arrangements (DAC6). Spain is likely to make a big effort to implement any new transparency requirements.

In 2021, Spain introduced a Digital Service Tax (often known as the “GAFA tax” or “Google tax”) aimed at applying a 3% tax on the revenues of tech giants such as Google, Facebook, Apple and Amazon on Spanish territory (see 2.8 Other Taxes Payable by an Incorporated Business). It only applies to companies belonging to a group with a total worldwide turnover of more than EUR750 million and with Spanish operations amounting to more than EUR3 million.

Spain will surely align its domestic legislation to international OECD digital economic taxation as soon as there is sufficient consensus on it. In the meantime, it is important to bear in mind that the Spanish approach to PEs is still one of the most aggressive approaches, leading to the existence of a Spanish PE as soon as there is a virtual presence in Spain (without the need for a clear physical presence).

Spain has not introduced specific provisions or benefits dealing with offshore taxation of intellectual property.

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RocaJunyent was established in 1996 and is one of the most prominent Spanish law firms. It has offices in Madrid, Barcelona and Gerona, as well as associated offices in Palma de Mallorca, Lérida, Tarragona, Málaga, Seville, Bilbao, Badajoz, Burgos and Valladolid. The firm offers advice in all areas of law, especially those related to commercial, banking and financial, procedural and tax law. RocaJunyent is the only Spanish member of the international network TerraLex. Taxes are levied on all kinds of entities and situations, which is why RocaJunyent’s tax department is prepared to respond to all kinds of problems – from large companies and their complex structures/operations to individual wealth/inheritance issues. The firm’s services include business taxation, tax wealth management, M&A, transactions taxation, transfer pricing and tax litigation.

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