Spain

Over the past year, the following significant amendments have been made to Spanish law on the taxation of companies:

Royal Decree-Law 4/2024

Royal Decree-Law 4/2024, which extends certain measures to address the economic and social consequences of the conflicts in Ukraine and the Middle East, and through which urgent tax, energy, and social measures are adopted, was passed on 26 June 2024 and published in the Spanish Official Gazette on 27 June 2024. The main tax measures included that affect corporate taxation are the following:

• The corporate income tax (CIT) accelerated depreciation incentive provided for investments in new vehicles classified as FCV, FCHV, BEV, REEV, or PHEV and new charging infrastructures for electric vehicles used for business purposes that come into operation in the tax periods starting in 2024 and 2025 is replaced by a free depreciation incentive.
• The CIT capitalisation reserve incentive is modified for tax periods starting from 1 January 2024. In this regard, the reduction percentage is increased from 10% to 15% and the equity maintenance period and the period during which the reserve may not be distributed is reduced from five to three years, with a transitional scheme according to which the three-year period will also be applicable to the incentives whose maintenance period has not expired.
• The tax incentives established in the Municipal Real Estate Tax and the Business Activity Tax for the Island of La Palma are extended during 2024.
• As regards value-added tax (VAT), the reduced VAT rates of 5% (and 0.62% sales equalisation tax) on seed oils and pasta and 0% on certain staple foods are extended until 30 September 2024. From 1 October 2024 until 31 December 2024, the rates will be increased to 7.5% (and 1% sales equalisation tax) on seed oils and pasta and 2% on certain staple foods (and 0.26% sales equalisation tax).
• From 1 January 2025 and without a time limit, the 4% VAT reduced rate will be applicable to olive oil.

Constitutional Court judgment 11/2024, on Royal Decree-Law 3/2016

Spain’s Constitutional Court judgment 11/2024, of 18 January 2024, published in the Official State Gazette on 20 February 2024, upholds the question of unconstitutionality number 2577-2023, that declares void and unconstitutional certain provisions of Law 27/2014, of 27 November 27, on corporate tax, incorporated through article 3.1, sections One and Two, of Royal Decree-Law 3/2016, of 2 December 2016 (RDL 3/2016). In particular, the measures that have been declared void and unconstitutional are the following:

• The introduction of more severe maximum offset limits for tax- loss carryforwards for taxpayers whose net turnover in the 12 months before the start of the financial year exceeds 20 million euros (EUR).
• The introduction for the same taxpayers of an additional limit to the application of tax credits for the avoidance of double taxation, both international and internal, as a result of which the sum of both tax credits could not exceed 50% of the taxpayer's gross tax liability.
• The obligation of all taxpayers to automatically include a minimum annual reversal of the impairment of shares previously deducted into the fiscal year 2016 to 2020 CIT base.

However, this judgment does not have full retroactive effects. Therefore, the tax liabilities accrued for CIT purposes that have been definitively determined by a final judgment with res judicata effect or a definitive administrative decision, the assessments that have not been contested, and the self-assessments whose rectification has not been requested at the date of the judgment cannot be reviewed. This means that only companies that have appealed the assessments or requested rectification of the self-assessments before the publication of the judgment in the Spanish Official Gazette will be able to benefit from the repeal the Royal Decree-Law.

Although a Royal Decree-Law can be used to establish, modify, or repeal taxes in emergency situations, the Constitutional Court understands that Royal Decree-Law 3/2016 exceeds the material limit provided for Royal Decree-Laws on tax matters, affecting the duty to contribute to the funding of public expenditure. According to the Constitutional Court, the amendments introduced alter essential elements of CIT, such as the tax base and the amount payable, affect the determination of the tax burden, and have a notable impact on a basic part of the tax system, affecting the essence of the CIT payers’ duty to contribute. Furthermore, the Court recalled that the Royal Decree-Law in question is connected to Royal Decree-Law 2/2016, which was already declared unconstitutional for the same reason by the Court’s judgment 78/2020, and which increased payments on account of CIT of large companies.

Royal Decree-Law 8/2023

Royal Decree-Law 8/2023, which adopts measures to address the economic and social consequences of the conflicts in Ukraine and the Middle East, as well as to alleviate the effects of drought, was approved on 27 December 2023 and published in the Spanish Official Gazette on 28 December 2023.

The most significant amendments contained in this legal text that affect the taxation of companies are the following:

• Certain measures are extended to counteract the economic and social consequences of the war in Ukraine. In this sense and to contribute to the reduction of its final price, the reduced VAT rates of 5% on olive and seed oils and pasta and 0% on staple food are extended until 30 June 2024.
• In order to contain prices and support the most affected citizens also in the field of energy, the application of reduced VAT on certain supplies of electrical energy and natural gas is extended. In this sense, the VAT rate applicable to intra-community supplies, imports, and acquisitions of electrical energy will be 10% during 2024, instead of the 5% applicable until 31 December 2023. The same rate will apply to natural gas until 31 March 2024 and to briquettes and pellets from biomass, as well as timber for firewood, until 30 June 2024.
• Regarding the tax on the value of electricity, its suspension as an exceptional measure had been extended until 31 December 2023. Due to the reduction in the price of electricity in recent months, said measure is mitigated. In this sense, during 2024, the tax base will comprise the total amount that the taxpayer must receive for the production and incorporation of electrical energy into the electricity system, measured in power plant bars, for each facility, in the tax period, reduced by half of the remuneration pertaining to the electricity included in the system during the first calendar quarter and reduced by a quarter of the remuneration pertaining to the electricity included in the system during the second calendar quarter.
• It is also considered necessary to mitigate the exceptional measure to reduce the tax rate of the Special Tax on Electricity (0.5% until 31 December 2023). Thus, during the first quarter of 2024, the tax rate will be 2.5%, increasing to 3.8% during the second quarter.
• The coefficients of the tax on the increase in urban land value are reduced during 2024, according to the period of generation of the increase in value.
• As regards CIT, the incentive of freedom of amortisation in relation to investments in self-consumption electricity facilities and investments in facilities that use energy from renewable sources is extended during 2024, subject to compliance with certain requirements.
• The application of temporary energy taxes and taxes on credit institutions and financial credit establishments is extended during 2024.
• Certain modifications are introduced to the Economic and Fiscal Regime of the Canary Islands, with effect from 1 January 2024, and that affect, inter alia, advance investments and the validity of tax incentives for entities in the Canary Islands Special Zone.

Royal Decree-Law 6/2023

Royal Decree-Law 6/2023, of 19 December 2023, which approved urgent measures for the execution of the Recovery, Transformation, and Resilience Plan in matters of public service of justice, public service, local government, and patronage, was published in the Spanish Official Gazette on 20 December 2023. The most significant amendments included in this regulation, all of them effective as of 1 January 2024, are the following:

• The tax credit for donations percentages applicable to both individuals and legal persons and to non-residents without a permanent establishment (PE) in Spain are increased as follows:
  
  • Where the donor is an individual, the donation base that entitles the donor to a tax credit of 80% with respect to one’s personal income tax (PIT) increases from EUR 150 to EUR 250. The excess over EUR 250 will entitle the donor to a 40% tax credit, compared to the previous 35%.
  • For legal entities, tax credits for donations with respect to CIT increase from 35% to 40% while the tax credit base may not exceed 15% of the tax base for the tax period (compared to the previous 10%).

  The number of years in which a donor or contributor must make donations to the same entity to qualify for the increased tax credit percentages is reduced from four to three. If in the previous two years a donation had been made to the same entity, the amount of the donation for this year and the previous year being equal to or greater, in each of them, than that of the immediately preceding year, the tax credit percentage would be 45% in the case of natural persons (currently 40%) and 50% in the case of legal entities (currently 40%).

  The objective of this measure is none other than to provide greater stability to the financing of these entities and ensure the ongoing participation of the private sector in activities of general interest.

• Regarding non-residents who operate in Spanish territory without a PE, the tax credit provided for PIT payers may be applied as before. However, the applicable limit to the tax credit base is increased by 5 percentage points. 

• The different types of donations that entitle the donor to the tax credit are expanded and include the transfer of use of a movable or immovable property for a specific period of time and for no consideration.
• Symbolic consideration is allowed. In this sense, it is established that the right to apply the tax credit will not be forfeited when the donor or contributor receives goods or services from the donee or beneficiary, provided that the value of said goods or services does not represent more than 15% of the value of the donation or contribution and, in any case, does not exceed the amount of EUIR 25,000.
• Actions for the socio-labour insertion of people at risk of social exclusion and the activities concerning education of the gifted are incorporated into the list of economic operations exempt from CIT of the entities benefiting from patronage that apply the special regime of Law 49/2002.
  
  

  The spectrum of research and development (R&D) activities that can enjoy the exemption is expanded to include all those defined as such in article 35 of the Corporate Tax Law, and innovation activities are included for the first time.

• To guarantee the proper functioning of these entities, it is specified that payment of civil liability insurance contracted by the non-profit entity for the benefit of employers, statutory representatives, and members of government bodies will not be considered remuneration if it covers only risks resulting from holding such positions in the entity.
• Business collaboration agreements in activities of general interest allow the entities that benefit from patronage to receive financial aid in exchange for disseminating the collaborators' participation by any means. In this sense, the possibility of this financial aid being in-kind aid is included. Although this mechanism had already been accepted by administrative doctrine, its inclusion in the standard confers greater legal certainty. At the same time, the possibility is included that this financial aid is granted in the form of a provision of services within the activity carried out by the collaborator. This allows the deductibility of the expense that the collaborator incurs due to this benefit. It is also specified that the positive income that may arise because of this financial aid is exempt from taxes on the collaborators’ income.
• Finally, and to make the dissemination of the collaborators’ participation more effective, it is accepted that said dissemination can be carried out by either the collaborator or the entities benefiting from the patronage. Until now, only entities that benefit from patronage could carry out such dissemination.