Spain introduces new restrictions on the deductibility of losses
30 January 2014
Posted by: Authors: Esteban Raventós and Rodrigo Ogea
Authors: Esteban Raventós and Rodrigo Ogea (Baker & McKenzie)
A new law introduces significant amendments to the Corporate Income Tax Act, which will have a particular impact on groups of companies which sell off subsidiaries.
Effective from 1 January 2013, the following are not tax deductible: (i) losses due to falls in value in securities representing stakes in the capital or shareholder equity of companies; (ii) losses registered abroad through Permanent Establishments ("PE"), except for transfers of establishment or cessation of activity; and (iii) losses registered by companies in a Temporary Union of Companies (Spanish abbreviation: "UTE") operating abroad, likewise with the exception of transfers of capital or equity stakes or the dissolution of the company.
In addition, deductible losses arising from the transfer of subsidiaries are reduced by the amount of the dividends distributed during the period of holding, which have not been taxed due to the application of mechanisms to prevent double taxation, both national and international. Dividends affecting the value of the subsidiaries are excluded from this limitation.
A temporary regime applies to falls in value of portfolio investments, losses in overseas PEs, income of UTEs and business restructurings.
The temporary attribution of income on transfers to companies within a corporate group has also been amended, limiting the deduction of the loss arising on the transfer of a stake in companies within the same group. In short, the deduction may be postponed until the stake in the company is sold off to third parties.
With regard to Tax Consolidation Groups, a new rule limits the deductibility of losses arising from the transfer of a company out of the consolidation group .In such cases, the loss will be reduced by the amount of the losses carried forward generated within the group and applied within it.
Finally, as a consequence of the changes indicated above, technical amendments are also made to the different deduction regimes in order to avoid double taxation (both international and national).
This article first appeared on lexology.com.