Spain: Strengthening of tax measures to boost energy efficiency and transposition of the regulation of reverse hybrid mismatches
Spain Tax Alert
Royal Decree-law 18/2022, of October 18, 2022, published on October 19, 2022, extends by one year the application of personal income tax credits for energy efficiency improvement works on dwellings, and permits unrestricted depreciation/amortization, for corporate income tax purposes, of investments that use energy from renewable sources. Moreover, it transposes the Community legislation on reverse hybrid mismatches.
The law approves, firstly, measures aimed at strengthening the protection of energy consumers and reducing the consumption of natural gas:
The tax credits could be applied to the amounts paid for works executed between October 6, 2021 and December 31, 2022 or 2023 (depending on the type of tax credit).
Now, the time period of the works to be considered for applying those tax credits is extended by one year, that is, until December 31, 2023 or 2024, depending on the case.
b) Corporate Income Tax With effects in the periods starting or ending in 2023, it introduces the possibility of unrestricted amortization of investments in (i) facilities intended for self-consumption of electricity that use energy from renewable sources, and in (ii) facilities for thermal use for own consumption that use energy from renewable sources, that replace facilities that use energy from fossil fuels.
These expressly exclude buildings as well as mandatory installations pursuant to the Technical Building Code, unless the facility has a nominal capacity that is above the required minimum. In this case, the taxpayer can apply unrestricted amortization to the part of the cost of the facility that is proportional to the installed capacity that exceeds said required minimum.
This regime will apply to the investments that are made available to the taxpayer on or after October 20, 2022, provided they come into service in 2023, and to a maximum amount of 500,000 euros.
The application of these rules requires that, during the 24 months subsequent to the commencement date of the tax period in which the assets acquired come into service, the total average workforce headcount of the entity is maintained with respect to the average workforce headcount in the preceding 12 months. Moreover, certain documentation proving that the investment uses energy from renewable sources must be obtained.
Entities that qualify for tax incentives for enterprises of a reduced size may elect to apply this the unrestricted depreciation/amortization regime or that established in article 102 of the tax law.
Moreover, the rules on hybrid mismatches are modified. In particular, Council Directive (EU) 2016/1164, of 12 July 2016, amended by Council Directive (EU) 2017/952, of 29 May 2017 (ATAD 2 Directive), in relation to reverse hybrid mismatches (completing the transposition made previously and summarized in our alert of March 10, 2021). Basically, reverse hybrid mismatches occur when their effect (double deduction of expenses or excessive tax relief/deduction without inclusion) is due to the consideration of an entity as transparent in its resident State and as a taxpayer of a personal income tax in the country of its shareholders or members.
Thus, with effect from January 1, 2022, the following exceptions to the general pass-through tax regime are introduced, both in the Personal Income Tax Law (these entities are now subject to corporate income tax) and in the Corporate Income Tax Law (tax regime).
In this regard, entities subject to the pass-through regime located in Spain must pay corporate income tax where the following circumstances arise:
a) One or more related entities own, directly or indirectly (on any day of the year), a stake in the capital, equity, results or voting rights of the pass-through entity, in a percentage of 50% or more; and
b) Those shareholders are resident in countries or territories that classify the pass-through entity as a taxpayer subject to personal income tax.
In these cases, the entity will be taxed as a corporate income taxpayer on the following income which should be attributed to the shareholders that are resident in countries or territories that treat the entity as a taxpayer subject to income tax.
a) Income obtained in Spain that is subject to and exempt from nonresident income tax.
b) Foreign-source income that is not subject to or is exempt from taxation under a tax levied by the country or territory of the entity(ies) paying that income.
The tax period will coincide with the calendar year in which such income is obtained.
The rest of the income obtained by the pass-through entity shall be attributed to the shareholders, successors, joint owners or members and shall be taxed according to the general provisions of the Personal Income Tax Law for this type of entity.
The pass-through entities that must apply the foregoing rules shall continue to be obliged to comply with the accounting and registry obligations corresponding to that regime, including with respect to the income that becomes subject to corporate income tax.