Depreciation, amortisation, and depletion
All assets, except land, are depreciable/amortisable for tax purposes. Guideline tables of tax depreciation/amortisation rates are established that state maximum per annum rates and maximum years of useful life for each asset type, classified by business sector.
The table below gives the maximum per annum rates and maximum years of useful life established in the guideline tables for some assets that are typically depreciated/amortised:
|Asset||Maximum per annum depreciation/amortisation rate (%)||Maximum useful life (years)|
|Administrative and commercial buildings||2||100|
|Internal transport elements||10||20|
|External transport elements||16||14|
The straight-line depreciation/amortisation method is normally used, calculated over the asset’s useful life and applied on the asset’s cost or written-up value (if such a write-up is acceptable for tax purposes). Off-book adjustments must be included in tax assessments if accounting depreciation/amortisation exceeds tax depreciation/amortisation.
Qualifying assets with a useful life of more than one year can also be depreciated/amortised using declining-balance methods. Buildings, furniture, and fittings cannot be depreciated using the declining-balance methods.
For tax periods starting in 2013 and 2014, the tax deduction of recorded depreciation of tangible fixed assets and investment property was limited to 70% of the maximum depreciation permitted by the regulations implemented under Spanish CIT law. This limitation did not apply to small or medium-sized companies. Recorded depreciation that was not deducted as a result of this limitation could be carried forward and is deductible either on a straight-line basis over ten years or, alternatively, over the asset’s useful life, from the first tax period starting in 2015. For tax periods starting in or after 2015, a tax credit may be applied on gross tax payable of 5% of the amounts included in the tax base resulting from depreciation charges not deducted in tax periods starting in 2013 and 2014. This tax credit compensates the reduction of CIT rates and ensures that the 70% tax depreciation limit only has a financial effect.
Mining assets and assets used for research and development (R&D), amongst others, but not including buildings, can be freely depreciated/amortised for tax purposes.
Unrestricted depreciation of investments in new tangible fixed assets and investment property was regulated for investments made by taxpayers in tax periods starting in 2011, 2012, 2013, 2014, and 2015. This tax relief was also available for tax periods starting in 2009 and 2010, but it could only be availed of if the requirement that the taxpayer’s staff levels were maintained or increased was met.
Due to the tax reform made with Royal Decree Law 12/2012, this tax relief was repealed effective 31 March 2012.
A transitional regime is established for investments made prior to that date. Under this transitional regime, the unrestricted depreciation tax relief may be applied for these investments with certain limits.
Amortisation of intangibles
For tax years starting in or after 2016, goodwill is amortised under Spanish GAAP during its useful life, which is estimated to be ten years unless otherwise proven. However, for tax purposes it can be amortised at a maximum annual rate of 5%, irrespective of whether or not the assets in question have been acquired from a company of the same corporate group. Goodwill acquired from another group company in tax periods starting prior to 1 January 2015 does not qualify for a deduction.
Intangible assets may be amortised during their useful life. When the useful life can not be reliably estimated, the assets will be amortised over ten years, unless otherwise established by law or the regulations implemented under law. This amortisation is tax deductible irrespective of whether or not the assets in question have been acquired from a group company. When the useful life of intangible assets cannot be reliably estimated, the amortisation is tax deductible up to the limit of 5%.
The amortisation of intangible assets acquired from another group company in tax periods starting prior to 1 January 2015 is not tax deductible.
For tax periods starting in or after 2015, taxpayers on whom the 70% limit for tax deductible amortisation applied in 2013 and 2014 are entitled to a deduction against their gross tax payable of the amounts included in their tax base resulting from amortisation not deducted in tax periods starting in 2013 and 2014. The deduction is 5% for tax periods starting in or after 2016. This deduction compensates the reduction of CIT rates and, consequently, ensures that the 70% tax-deductible amortisation limit only has a financial effect.
Depletion is allowed for mining companies and companies involved in exploring/investigating natural oil resources as established in applicable legislation.
To promote the internationalisation of Spanish companies, in 2002 a rule was introduced that financial goodwill arising from the acquisition of an interest in a non-resident company (financial goodwill being, in this case, the excess price paid for the acquisition of the business over its net book value at the date of the acquisition that cannot be allocated to the non-resident company’s assets in Spain) could be amortised up to a maximum of 5% per year.
To apply this tax relief, the following requirements had to be met:
- A minimum 5% interest had to be held in the non-resident company.
- The non-resident company had to be subject to a similar tax to Spanish CIT.
- The income obtained by the non-resident company had to be generated from business activities carried on abroad in accordance with Spanish CIT law.
Decisions of the European Commission dated 28 October 2009 (regarding interests in non-resident EU companies) and 12 January 2011 (regarding interests in non-resident non-EU companies) considered that this tax relief was unlawful state aid.
According to the Commission’s decisions, only acquisitions of interests in non-resident companies carried out before 21 December 2007 (or before 21 May 2011 for majority interests in non-resident companies established in countries with explicit obstacles to cross-border business combination transactions outside the European Union) can continue applying this tax relief until the financial goodwill is wholly amortised.
The provisions related to financial goodwill tax relief laid down in the Spanish CIT Act were amended by Law 31/2011, passed on 4 October 2011, and take effect for tax periods ending on or after 21 December 2007. Under the amended provisions, the financial goodwill tax relief is not applicable for acquisitions of interests in non-resident companies carried out on or after 21 December 2007 (or on or after 21 May 2011, when there is evidence that there is an explicit obstacle for cross-border business combination transactions outside the European Union).
In its decision of 17 July 2013, the Commission asked the Spanish tax authorities to suspend their rule that allowed for the tax deduction of financial goodwill arising from second or bottom-tier non-resident companies.
On 7 November 2014, two judgements of the EU General Court annulled the Commission's decisions on the grounds that the Spanish financial goodwill tax relief did not constitute state aid that was incompatible with the internal market because, amongst other reasons, it could not identify a category of undertakings that benefited from the measure or selectivity.
However, in a decision delivered on 21 December 2016, the EU Court of Justice concluded that the fact that the Commission had failed to identify a particular category of undertakings that benefited from the financial goodwill amortisation was not sufficient grounds for the annulment of Commission's decisions. Instead, the EU General Court should have examined whether the Commission had effectively analysed and established that the measure at issue was discriminatory.
The EU Court of Justice has not given a final judgement for the cases that were sent back to the EU General Court for a second hearing.
According to Spanish GAAP, start-up expenses are considered to be expenses in the financial year in which they are incurred. As no special rule is provided for tax purposes, they are deductible for CIT purposes in the year in which they are incurred.
General limits on the deduction of financial expenses
The amount of net deductible financial expenses in the tax period is generally reduced to 30% of operating profit (similar to earnings before interest, taxes, depreciations, and amortisation [EBITDA], applying certain adjustments) for the year, financial expenses of less than EUR 1 million (or the proportional part for tax periods of less than one year) being deductible regardless of the 30% limit. For this purpose, net financial expenses will be considered to be the excess of financial expenses (excluding the non-deductible expenses mentioned below) with respect to income deriving from the assignment of capital to third parties accrued in the tax period.
For companies taxed under the tax consolidation regime, the deduction limit will refer to the tax group. Nonetheless, the company’s net financial expenses available for deduction at the time of its inclusion in the group will be deducted, up to the limit of 30% of its operating profit. When a company stops forming part of the group or the group is extinguished and there are net financial expenses available for deduction, the rule will be similar to that for assigning tax losses to the companies that formed part of the group.
Limits on the deduction of financial expenses will not apply to dissolved companies for the tax period in which they are dissolved, unless the company is dissolved as a result of a restructuring operation.
Finally, limits on the deduction of financial expenses will not apply to insurance companies or credit institutions. Financial expenses that have not been deducted due to the application of this limit can be deducted in subsequent tax periods for an unlimited period of time.
Specific limit on the deduction of financial expenses on the acquisition of interests in the capital or equity of any type of company
A specific limit is introduced for financial expenses generated from debts incurred to acquire interests in the capital or equity of any type of company. These expenses are deductible, subject to an additional limit of 30% of the acquirer's operating profits, excluding the operating profits of any company that may merge into the acquirer or that may join its tax group during the four years following the acquisition (besides this specific limit, the general limit on tax deductibility will also apply to these financial expenses).
This specific limit is not applicable when the debt associated with the acquisition of the interest reaches a maximum of 70% and is reduced, as of the time of the acquisition, by at least the proportional part corresponding to each of the following years until a level equal to 30% of the acquisition price is reached.
This specific limit does not apply to restructuring operations carried out before 20 June 2014 or to restructuring operations carried out on or after 20 June 2014 between companies that formed part of a tax consolidation group during tax periods starting before that date.
Financial expenses that have not been deducted due to the application of this limit can be deducted in subsequent tax periods for an unlimited period of time.
Specific limit on the deduction of intra-group financial expenses on acquisitions of interests in other group companies or contributions to capital or equity of other group companies
Over the past few years, a large number of tax inspections have adjusted the tax effects of acquisitions of shares from group companies with intra-group debt. Many of these operations were acquisitions of shares in non-resident companies, so that the dividends and capital gains arising from the acquisition of the shares were covered by the exemption for the avoidance of double taxation established in Article 21 of the Spanish CIT Act. In addition, the lenders of these operations were usually located in low-tax territories.
In the absence of specific limitation rules on the tax deductibility of financial expenses in previous years, the reaction of the tax authorities to these kinds of operations has been to apply general anti-abuse rules.
With this scenario, Royal Decree-Law 12/2012 introduced a limitation rule for the deduction of intra-group financial expenses that is applicable for tax periods starting on or after 1 January 2012. In accordance with this rule, financial expenses arising from debts with group companies generated from acquisitions of interests in other group companies or contributions to capital or equity of other group companies will not be deductible unless there is evidence that there are valid economic reasons for such expenses.
Interest on participating loans contracted by group companies on or after 20 June 2014 is a return on equity and is not deductible for tax purposes. In the recipient's tax returns (if the recipient is a Spanish CIT payer), it should be treated as dividends and the recipient may be eligible, when appropriate, for a tax exemption for the avoidance of double taxation of dividends.
Bad debt provisions
Provisions for covering the risk derived from possible bad debts are tax deductible when, at the time the tax accrues, any of the following circumstances exists:
- Six months have elapsed since the obligation became due.
- The debtor is declared bankrupt.
- The debtor is prosecuted for embezzlement.
- The obligations have been claimed judicially or are the subject of a legal dispute or arbitration proceedings, and collection depends on their outcome.
Provisions for the credits listed below are not tax deductible:
- Credits owed by public law entities, unless they are being examined in an arbitration or court proceeding brought to establish their existence or amount.
- Receivables from related persons or companies, unless they are going through bankruptcy proceedings and the court has declared the initiation of the liquidation phase.
- Credits based on overall estimates of the bad debt risk corresponding to trade and other debtors.
Special rules apply to bank entities.
Time apportionment of certain allocations or welfare system provisions
Positive adjustments arising from certain allocations to bad debt or welfare system provisions that are non-deductible under the Spanish CIT Act should be reversed in the corresponding year in accordance with this Act, up to a maximum, which depends on the company’s net turnover in the 12 months prior to the start of the tax period:
- If net turnover is less than EUR 20 million, positive adjustments to these provisions may be reversed up to 70% of the tax base prior to the capitalisation reserve adjustment and to the offset of tax-loss carryforwards.
- If net turnover is at least EUR 20 million but less than EUR 60 million, positive adjustments to these provisions may be reversed up to 50% of the tax base prior to the capitalisation reserve adjustment and to the offset of tax-loss carryforwards.
- If net turnover is at least EUR 60 million, positive adjustments to these provisions may be reversed up to 25% of the tax base prior to the capitalisation reserve adjustment and to the offset of tax-loss carryforwards.
In all cases, positive adjustments to these provisions may be reversed up to EUR 1 million. Any excess can be allocated to subsequent years, subject to the same limits and provided that a deferred tax asset has been recognised.
Equity investments in companies
Impairment allowances for share capital or equity investments in companies are generally not deductible.
As an exception, if the interest is less than 5% and, in the case of interest in the capital of non-resident companies, if the investee company has been subject to and not exempt from a foreign tax identical or analogous in nature to CIT at a nominal rate of at least 10% or is resident in a country with which Spain has signed a DTT containing an exchange-of-information clause, the impairment will be deductible as a result of the transfer or disposal of the interest, provided that the above requirements are met during the year prior to the transfer or disposal.
Impairment on interest that was deductible in tax periods prior to 2013 is reversed for: (i) unlisted companies, when there is an increase in equity or payment of dividends, and (ii) listed companies, when there is an increase in the book value of the interest.
However, an obligation concerning a minimum annual reversal of impairment losses on securities that were considered deductible for tax purposes is introduced. Thus, the net amount of the valuation adjustment that would have been tax deductible is included, as a minimum, in equal parts in the tax base for each of the five tax periods commencing as of 1 January 2016.
Severance pay is tax deductible for CIT purposes when it does not exceed, for each recipient, the higher of the following amounts: (i) EUR 1 million or (ii) the amount established as the obligatory amount in the Workers’ Statute Act, the regulations implemented under the Act, or, if the case, the legislation regulating the enforcement of decisions/judgements.
Donations are considered to be non-deductible expenses for CIT purposes, but a tax credit may be availed of for donations to non-profit organisations that comply with certain requirements. The tax credit in this case is 35% of the donation. However, if during the two immediately preceding tax periods, deductible donations or contributions have been made to the same non-profit organisation for an amount equal to or exceeding, in each case, those made in the previous tax period, the deduction percentage applicable to the deduction base for the company is 40%.
In addition, the tax credit is not limited to 25% of the donating company’s gross tax payable less the deductions for international double taxation and tax relief for income obtained in Ceuta and Melilla, for export activities, and for local public services, which is applicable for other tax credits (see CIT relief in the Tax credits and incentives section).
The tax credit base cannot exceed 10% of the taxable income of the financial year. Any excess may be carried forward for a period of ten years.
For donations to listed priority sponsorship activities, the tax credit may be increased by 5% and the 10% tax credit base limit can be increased to 15%.
Fines and penalties
Penalties imposed for failing to pay taxes and surcharges for late filing/payment or for other tax infringements are not tax deductible.
The Spanish tax authorities usually consider that late payment interest recorded as an expense is tax deductible; however, some case law in Spain questions whether this interest is a taxable expense.
Taxes, other than CIT, that are recorded as an expense due to their nature (e.g. business and professional activities tax, but not withholdings) are tax-deductible expenses. In some cases, indirect taxes, such as non-deductible VAT or transfer tax, can be added to the value of assets for depreciation purposes.
Net operating losses
Tax losses may be carried forward for an unlimited amount of time. As a general rule, tax losses cannot be carried back. There are no tax loss 'baskets' (operating/capital). Notwithstanding, companies whose turnover in the previous tax period was under EUR 10 million may reduce their positive tax base by up to 10% of their amount by establishing a non-distributable reserve for the amount of the reduction (reserve for the levelling-off of tax losses). The reduction may not exceed EUR 1 million and should be reversed in line with the tax losses obtained by the company, subject to a five-year time limit.
The tax losses of any type of company can be offset against positive income generated in the ensuing tax periods. The amount of tax-loss carryforwards that may be offset will depend on the company’s net turnover during the 12 months prior to the start of the tax period:
- If net turnover is less than EUR 20 million, the previous regulations will apply (i.e. tax-loss carryforwards may be offset up to 70% of the tax base prior to the capitalisation reserve and their offset).
- If net turnover is at least EUR 20 million but less than EUR 60 million, tax loss carryforward may be offset up to 50% of the tax base prior to the capitalisation reserve and their offset.
- If net turnover is at least EUR 60 million, tax-loss carryforwards may be offset up to 25% of the tax base prior to the capitalisation reserve and their offset.
In any event, tax-loss carryforwards for an amount of up to EUR 1 million may be offset.
The above limits do not apply: (i) in the tax period in which the company is extinguished, unless this is due to a restructuring operation carried out under the tax neutrality regime, and (ii) to any income corresponding to debt relief or deferral resulting from an agreement with creditors.
Complex rules may limit the use of tax-loss carryforwards of a company dissolved as a result of a restructuring operation and, in certain circumstances, when it has a change of shareholders.
Payments to foreign affiliates
Supplies of goods or services by a company not established in Spain to a Spanish group company must be valued at arm’s length. If recorded expenses for such goods/services exceed the arm’s-length price, the tax deductibility of the excess amounts could be challenged in a tax inspection. The tax deductibility of expense charges received from tax havens is fully disallowed unless proper evidence of an actual service valued at arm’s length can be provided.
Management support services received from outside Spain and recorded as distributions of costs of a group centre do not have to be documented in a written agreement entered into before the commencement of the services to ensure the tax deductibility of the expenses (as previously was the case), although it would be recommendable to have such an agreement. For any other types of services, an agreement recorded before a notary public is not obligatory under Spanish law, but it is advisable.
As regards the taxation in Spain of the foreign company supplying the services, the WHT rate to be applied on the gross income obtained by the company is 24% (19% for residents in other EU member states or European Economic Area [EEA] countries with which there is an effective exchange of tax information). Dividends, interest, and capital gains generated as a result of a transfer of assets are taxed at a 19% WHT rate. If management services, technical assistance, or the performance of studies are solely used outside Spain and are linked to business carried on abroad, then no WHT is applicable. In addition, under most DTTs signed by Spain, ‘business profits’ obtained in Spain by non-residents are exempt from WHT. However, ‘business profits’ is a miscellaneous residual category. For instance, if the amount obtained qualifies as a royalty payment, WHT is applicable at the reduced DTT rates if the foreign company can obtain a document from the tax authorities of its country of residence certifying its tax residence. If no DTT applies, then the above 24% (19% for residents in other EU member states or EEA countries with which there is an effective exchange of tax information) WHT rate is applicable (see the Withholding taxes section for more information).
PEs and interests in joint ventures
Losses obtained outside Spain by means of a PE are not tax deductible. Losses generated from interests in joint ventures that carry on a business activity outside Spain are not tax deductible either.
Negative income generated from the transfer of a PE is not tax deductible.
Negative income derived from the discontinuation of a PE’s activity is deductible. However, such negative income will be reduced by the amount of the net positive income previously obtained that has qualified for the exemption or deduction for double taxation.