The Group as a single taxpayer for Corporate Income Tax purposes
The new Corporate Income Tax Law which came into force in 2015 introduced a very subtle change which has nevertheless brought about changes to some fundamental aspects of the tax consolidation regime for Corporate Income Tax purposes.
Although the Group tax base continues to be determined as the sum of the individual tax bases of each of the group companies, the introduction by the legislature of a single reference in the article of the Law which regulates the determination of the taxable income of the tax Group has meant that all requirements, thresholds or classifications established in relation to the determination of the tax base are now determined at Group level.
Some of the non-accounting adjustments which are required to be applied in the assessment of the Tax are required to be determined overall for all the Group companies and then distributed between them based on a criterion of proportionality. This has reinforced the concept of the consolidated group as a single Corporate Income Tax taxpayer, meaning that the different companies of which the group is made up do not simply contribute to the group their tax base calculated at individual level —each one of them can have a direct impact on the determination of the base to be allocated to the rest of the group companies.
One example are the limits on the application of accelerated depreciation, in force up to 2015, which were required to be determined based on the taxable income of the Group, although the interpretation applied up until 2014 had been the exact opposite.
Another of the aspects which is affected by this “new” concept of the consolidated Group tax base, is the deduction of client or supplier hospitality expenses. As mentioned a few months ago, the Law introduced – effective as from 2015 – a limit on the deduction of these expenses equal to 1% of the taxpayer’s net revenues. Clearly, this 1% limit should be interpreted as referring to the consolidated net revenues of the tax group, as has been confirmed by the Directorate General of Taxes.
It is therefore important to pay particular attention when determining the individual tax bases of the companies of which the Group is made up and for the companies to confer beforehand on all non-accounting adjustments applicable to them.
Garrigues Tax Law department
This article was published on Diari de Tarragona