Publications

The reform of the regime for monetization of deferred tax assets in the General Budget Law for 2016

10/30/2015
Commentaries

Royal Decree-Law 14/2013 introduced into corporate income tax law a regime for the conversion of deferred tax assets (“DTAs”). The regime consisted of a new timing of recognition rule in the tax base for certain provisions for the impairment of receivables or other assets in respect of bad debts and provisions or contributions to employee benefit systems and, where applicable, to preretirement systems. It also set out the requirements and options for carrying out the conversion of the DTAs in respect of those provisions into a sum claimable from the tax authorities (i.e. the monetization of DTAs).

Royal Decree-Law 14/2013 introduced into corporate income tax law a regime for the conversion of deferred tax assets (“DTAs”). The regime consisted of a new timing of recognition rule in the tax base for certain provisions for the impairment of receivables or other assets in respect of bad debts and provisions or contributions to employee benefit systems and, where applicable, to preretirement systems. It also set out the requirements and options for carrying out the conversion of the DTAs in respect of those provisions into a sum claimable from the tax authorities (i.e. the monetization of DTAs).

The preamble to Royal Decree-Law 14/2013 specified the main reason for the reform made at that time, which was to allow certain DTAs to be able to continue to be computed as capital, in line with the rules in force in the European Union, so that Spanish credit institutions could operate in a uniform competitive environment. The reference to European legislation relates to Regulation (EU) No 575/2013 of the European Parliament and of the Council, of June 26, 2013, and Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 (“CRD IV”).

Now, the General Budget Law for 2016, effective for tax periods beginning on or after January 1, 2016, amends the regime to make the conversion a right for the taxpayer, lay down new conditions for being eligible for the conversion and add certain disclosure obligations in relation to the DTAs affected by the legislation. It also introduces a transitional regime applicable to the DTAs generated before January 1, 2016, according to which, if certain conditions are not satisfied, the right to the conversion may be retained although a public levy must be paid to be allowed to do so. In the reasoning for the amendment by the Parliamentary Group in the upper house of the Spanish parliament which introduced this reform in the parliamentary process for the Budget Law, it was explained that the purpose of the public levy was “to compensate for the risk that is transferred to the State” as a result of the monetization of DTAs, “although this activity does not fall within the definition of a charge, because it does not qualify as a public service or activity, but within the category of other types of services or activities performed by the government, and therefore, in short, a public levy as defined in article 31 of the Spanish Constitution must be put in place”.

The wording of the reform poses a number of important questions that need to be clarified. Described below are a few of the most prominent. 

Amendment of the regime for the monetization of DTAs

1 Amendment of article 11.12 of the Corporate Income Tax Law (LIS): timing of recognition rule 
2 Amendment of article 130 LIS and transitional regime: monetization of DTAs
3 New additional provision thirteen: public levy in respect of the monetization of DTAs
 

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