Publications

Corporate income tax

The offset of tax losses at companies acquired before 2015 is subject to the limits in the legislation applicable at that time

Directorate General for Taxes. Resolution V2178-19 of August 14, 2019

The Corporate Income Tax Law in force until the years that began on or after January 1, 2015 (the Revised Corporate Income Tax Law, approved by Legislative Royal Decree 4/2004, of March 5 –TRLIS-) placed various restrictions on the offset of tax losses of companies where a change of control had occurred.  The current rules (Law 27/2014, of November 27, 2014 –LIS-), applicable for years that began on or after January 1, 2015, also place a number of restrictions but with amendments to the previous wording. Among others, in the more recent Corporate Income Tax Law (LIS) these restrictions apply where the acquired company carried on in the two years after the acquisition a different or additional activity to that carried on before the acquisition, which brings net revenues 50% above the average revenues for the previous two years. This requirement was not laid down in the earlier TRLIS.

This resolution concerned the case of a company that acquired in 2014 (namely, when the TRLIS was in force) control of another company with tax loss carryforwards, generated between 1997 and 2013. Following the acquisition, the new shareholders changed the company's activity.

The DGT concluded that because the majority interest in the capital of the company with losses was acquired before entry into force of the LIS, the restriction on the offset of tax losses is that applicable when the acquisition took place, which is the restriction contained in article 25.2 of the earlier TRLIS law. Therefore the new rule regarding the change of activity does not apply.

 

Corporate income tax

A loss obtained on the sale of a debt is not affected by the restriction on deduction of finance costs

Directorate General for Taxes. Resolution V2133-19 of August 13, 2019

A company transferred a debt to an unrelated company at a discounted value. A financial loss for accounting purposes was recorded in respect of the difference between the price received and the carrying amount of the assigned debt. The company asked the DGT whether this financial loss is affected by the general limit in the Corporate Income Tax Law on the deduction of finance costs.

According to the DGT, this loss is not affected by that limit because it was not obtained on the company's own debts.

 

Corporate income tax

The capitalization reserve is included to calculate increase in equity

Directorate General for Taxes. Resolution V1854-19 of July 16, 2019

Corporate income taxable persons benefit from a reduction to their tax base amounting to 10% of the increase in their equity if, among other requirements, they record a reserve for the amount of the reduction. Legal or bylaw reserves are not included for determining the increase in equity, according to the Corporate Income Tax Law.

On the basis of this exception, the DGT has interpreted in the past that the term “legal reserve” must include any reserve required to be recorded by a statutory provision in corporate law.

The DGT concluded in reply to this resolution request, however, that under a reasonable interpretation of the law the capitalization reserve itself should not be classed as a legal reserve, and therefore it could be considered part of equity at the beginning or end of the year.

 

Corporate income tax and nonresident income tax -Treaty with Malaysia

Payments for technical services are taxed as royalties if they are physically provided in Spain

Directorate General for Taxes. Resolution V2223-19 of August 19, 2019

A multinational group has centralized in a company located in Malaysia the provision of specific accounting and financial services, for which one of the clients is a Spanish subsidiary of the group. The service is physically provided at premises in Malaysia.

According to article 12 of the Malaysia-Spain tax treaty, payments in respect of technical services (including management or consulting services) may be taxed as royalties in the state in which they arise. For these purposes, it is considered that technical services arise in a state where the services are provided in that state.

Based on these rules, the DGT concluded as follows:

1. The accounting or financial services may be deemed to fall within the definition of “technical services”.
2. In the examined case, since the services are not physically provided in Spain they cannot be taxed in Spain.

 

Personal income tax

Interest remaining to be deducted on the financing for a leased property cannot be used to determine the income obtained from leasing other properties

Directorate General for Taxes. Resolution V1698-19 of July 09, 2019

The requesting party had a property that it had obtained using borrowed funds. Since it leased the property, in determining its income from immovable capital it included the interest paid on that finance as deductible costs. In some years, however, it obtained a loss that it could not use in full, and left amounts to be deducted over the following four years. At the time of a later sale of the property a part of those finance costs not actually deducted had yet to be used. It was asked whether that unused interest could be treated as deductible expenses from the income obtained from leasing other properties.

The DGT replied that this was not allowed because it considers that income from immovable capital has to be calculated “for each property individually”.

 

Personal income tax

The cost of contributions for self-employed workers is deductible even if the director's services are not remunerated

Directorate General for Taxes. Resolution V1783-19 of July 11, 2019

The requesting party was chief executive officer and shareholder owning more than 25% of a dormant company’s shares and received no income from the company. Despite this, under the social security legislation contributions had to be paid under the regime for self-employed workers for that person's services as director.

According to the DGT, these contributions are treated as a deductible expense for determining net salary income, even though they generate a negative net salary income figure if no other income of this type is obtained from other employers that is higher than the paid contributions.

 

Personal income tax

The one-year period for deducting a past-due debt starts to run from when the enforcement claim is filed

Directorate General for Taxes. Resolution V2211-19 of August 19, 2019

The personal income tax legislation allows the capital loss obtained from past-due debts to be calculated where, among other circumstances, a period of one year has run from the start of a court proceeding other than insolvency proceedings for enforcement of the debt and the debt has not been paid.

According to the DGT, the one-year period starts to run from when the enforcement claim is filed, where it is accepted.

Additionally, because the loss does not arise from a transfer of assets it must be included in the general component of taxable income.

 

Personal income tax

Administration and custody costs for shares in collective investment vehicles are deductible

Directorate General for Taxes. Resolution V2117-19 of August 12, 2019

A question was submitted concerning the deduction of administration and custody costs for shares in Spanish and foreign collective investment vehicles.

The DGT concluded that, if the shares in these types of vehicles qualify as marketable securities, the administration and custody costs for these shares, charged to the client by the institution selling them, are deductible from income from movable capital, where they meet the criteria for their chargeability determined by the Spanish National Securities Market Commission.

 

Personal income tax

The contribution or conversion into equity of a debt to a company with the intention of liquidating the company immediately could be regarded as a gift

Directorate General for Taxes. Resolution V1824-19 of July 15, 2019

The DGT looked at the case of an individual owed a debt by a dormant company where they were shareholder, and considering whether to forgive that debt or convert it into equity. The request concerned the treatment of these transactions for personal income tax purposes. The DGT made the following analysis:

1. It first recalled that, under article 14.2.k) of the Personal Income Tax Law (applicable since January 1, 2015), losses arising from past-due debts may be reported in the period when (i) a write-off allowed in a refinancing agreement approvable by a court becomes enforceable, (ii) an arrangement allowing a write-off of the debt when the debtor is in an insolvency proceeding becomes enforceable, or lastly, (iii) the debt is not paid within a year from the commencement of a court proceeding other than an insolvency proceeding, brought to enforce the debt. This last circumstance will only be taken into account if the one-year period ends on or after January 1, 2015.

2. Otherwise, if instead of reporting that loss, the debt is forgiven or converted into equity, no income is obtained, instead an increase occurs in the acquisition value of the investment for the purposes of future transfers of the shares.

3. Because this may cause a tax advantage, the DGT recalled that, if it is identified that forgiveness of the debt or its conversion into equity are very close to the liquidation of the company it could be held that they were done to create a tax advantage and the transaction could be adjusted under the rules in the General Taxation Law on unusual transactions (conflict in the application of tax provisions or simulation).

 

Personal income tax

The incoming expatriates regime may be applied for again if tax residence is not obtained in the first relocation to Spain

Directorate General for Taxes. Resolution V2201-19 of August 16, 2019

The requesting party moved to Spain in November 2017. They notified election of the inbound expatriates regime. In June 2018, however, they were sent to another country, and therefore never became resident in Spain (in 2017 and in 2018 they spent fewer than 183 days a year in Spain and did not satisfy the other requirements to be treated resident in Spain).

Therefore, the DGT concluded as follows:

1. In both 2017 and in 2018 the taxable person should have been taxed in Spain as a nonresident, and the special inbound expatriates regime was not applicable to them.
2. If they later became tax resident in Spain as a result of a new relocation to Spain, they are allowed to re-elect the special inbound expatriates regime, because it was never applied and the requirement not to have been resident in Spain in the previous ten years was satisfied.

 

Tax on construction, installation projects and works

The transferee of assets does not become a taxable person for the tax on construction, installation projects and works if they are not substituted for the transferor in respect of all rights and obligations

Directorate General for Taxes. Resolution V1841-19, of July 15, 2019

The tax on construction, installation projects and works is reported on (i) a provisional return that has to be based on the initial quote for the work, and (ii) a final return, based on the final cost of the work.

The examined case concerned a company that was going to acquire assets from a company in liquidation, including a permit for major work relating to the unfinished construction of houses for which a provisional return had already been filed. The transferee asked whether an application could be made for any refund resulting from the final return for the tax on construction, installation projects and works.

The DGT clarified that the transferee only becomes taxable person for the tax on construction, installation projects and works where the transferee is substituted for the transferor in respect of all rights and obligations, as happens, for example, in a merger between two companies. In the case submitted for resolution, any refund arising from the final tax return cannot be applied for therefore by the transferee of the assets, because the acquisition does not legally involve this type of substitution.