Spain Tax Alert - 5 April 2012
More tax measures introduced to tackle public deficit
By Brian Leonard, Francisco Martin Barrios and Esther Sánchez González
The new Spanish government has published a second round of austerity measures to tackle the decline in the effective corporate income tax rate, particularly with regard to large corporations and to attempt to reduce the public deficit. Royal Decree-Law 12/2012 was published in the Official Gazette on 31 March 2012 and is generally effective as from that date. Some of the measures, however, are effective retroactively for taxable years beginning on or after 1 January 2012.
Austerity measures introduced earlier this year also contained urgent budgetary, tax and financial measures to control the public deficit.
The new decree contains the following measures:
- A minimum advance payment equal to 8% of the total book net income reduced by net operating loss carryforwards will be due by taxpayers with total turnover of EUR 20 million or more. However, the applicable percentage will be 4% for the estimated tax payments due on 20 April 2012.
- For taxable years beginning on or after 1 January 2012, interest deductions will be capped at 30% of EBITDA (i.e. earnings before interest, tax, depreciation and amortization). Excess expense, however, may be carried forward for 18 years (up to the 30% EBITDA limit each year). Interest expense on loans obtained to fund an intragroup acquisition will not be allowed unless the acquisition has a valid economic purpose.
- Changes are made to the income tax exemption applicable to gains derived from the disposition of nonresident entities in Spain for cases in which the requirements for application of the exemption have not been met for the entire period, allowing, in essence, the exemption to apply proportionally with respect to the taxable years for which the requirements were met. Any gains that do not qualify for the participation exemption will be included in the taxable base, with a deduction available to avoid double taxation. This measure applies to taxable years beginning on or after 1 January 2012.
- For 2012 only, a special tax of 8% will apply to profits derived by overseas subsidiaries in the performance of business activities that do not qualify for the participation exemption because they fail the “subject to tax test.” Therefore, in principle, dividends received from a foreign subsidiary located in a no-tax country or a tax haven will be taxed at a reduced rate of 8% instead of the general corporate income tax rate of 30%.
- For taxable years 2012 and 2013, the maximum annual amortization rate for goodwill in the context of an acquisition or reorganization is reduced from 5% to 1%.
- For taxable years 2012 and 2013, the amount of deductible tax credits available for certain promoted activities is reduced from 35% to 25% of the corporate income tax due, and the reinvestment tax credit will be included in the calculation of the limit (previously not included). The tax credit carryforward period is extended from 10 to 15 years.
- The “free depreciation” regime that applied to the acquisition of new fixed assets is abolished and replaced by a transitional regime for amounts pending. Under the transitional regime, for taxable years 2012 and 2013 companies can depreciate between 20% and 40% of the taxable income before applying net operating losses.
- As a tax amnesty, a one-time 10% tax is introduced on undeclared wealth for all taxpayers (including all domestic and foreign individuals and corporations).