Changes in tax rules aimed at consolidating public finances
Royal Decree Law 3/2016 for the adoption of tax measures designed to consolidate public finances and other urgent social measures was published on December 3. Its objective is to incorporate into Spanish legislation certain provisions aimed at reducing the public deficit and correcting imbalances in Spain’s economy, thereby completing the measures already introduced by Royal Decree Law 2/2016 of September 30, 2016 which, among other questions, changed the legal regime applicable to corporate income tax prepayments.
The changes introduced in the tax area include most notably the amendments made to corporate income tax legislation, the increase in certain excise and special taxes, new requirements for applying for deferrals for the payment of certain tax debts, and the updating of cadastral values.
Insofar as corporate income tax is concerned, the changes – some of which take effect for 2016 itself – are aimed at increasing tax receipts, eliminating the deductibility of impairment losses on shareholdings owned in other entities, and bringing forward the reversal of provisions recorded previously, in addition to placing restrictions on and deferring the application of tax losses and credits for the avoidance of double taxation.
Effective for tax periods commencing as from 1 January, 2016, and in relation to the offsetting of tax losses and DTAs, a limit equal to 50 per cent of the prior tax base is imposed when net revenues amount to between 20 and 60 million euros, the limit being 25% when they exceed 60 million. There continue to be certain exceptions to the application of these limits. Double taxation tax credits may not exceed 50 percent of gross tax payable, including those which are pending application.
Impairment losses on shareholdings which were deductible for tax purposes prior to 2013 and are pending reversal are required to be included in the tax base, as a minimum, in equal portions in each of the first five tax periods commencing as from January 1, 2016. If the impairment loss recovered is higher, the remaining balance is to be included in equal portions over the remaining periods. In the event of a transfer of such holdings taking place within these periods, the amount pending is to be included in the tax base in the period in which the transfer takes place, subject as a limit to the gain deriving from it.
As from January 2017, losses incurred on the transfer of shareholdings which meet the requirements for exemption under article 21 of the Corporate Income Tax Law (“qualifying” entities) will not be deductible. There is nevertheless no impact on losses generated in the event of extinguishment of the investee, unless this is the consequence of a restructuring transaction.
The impairment of securities representing ownership interests in “non-qualifying” entities continues to be disallowable. Losses incurred on the transfer of such ownership interests are to be included in the tax base, subtracting from them any gains generated on a prior inter-group transfer in respect of which an exemption regime or credit for the elimination of double taxation was applied. In the event of extinguishment of the investee, losses may also be computed, unless the extinguishment results from a restructuring transaction or any other situation entailing the continuation of the activity.
On the other hand, impairment losses or losses made on the transfer of shareholdings in entities located in tax havens or territories which do not impose a certain minimum level of taxation are disallowable. The special rule on losses incurred in successive transfers of homogeneous securities has also been done away with.
Also disallowable, as a general rule, are depreciations in the value of qualifying shareholdings owing to the application of the fair value criterion.
As mentioned above, changes are made to the rules on deferrals and prepayments, establishing three new situations in which deferral or prepayment will not be allowed. It should be noted that debts deriving from the obligation to make corporate income tax prepayments, those corresponding to value added tax, and those deriving from tax withholding obligations are not deferrable in any circumstances, with no exceptions. The possibility of payment in kind in relation to non-deferrable tax debts is also eliminated.
Finally, with respect to the updating of cadastral values, it should be noted that adjustment multipliers are approved each year through the General State Budgets Law. Since the General State Budgets Law for 2017 could not be processed in time, this legislative mechanism has been used for the approval of these adjustments, given that the updating of cadastral values has an immediate impact on the real estate tax (IBI), which accrues on January 1 of each calendar year.
Garrigues Senior Associate
Garrigues Tax Law department