Main changes to Spanish Corporate Income Tax provisions following the approval of Royal Decree, 3/2016, dated 2nd of December

Written on 7 Dec 2016

The tax provisions, published on 3rd of December in the Spanish Official Gazette, result in significant amendments to Spanish tax provisions.  In this respect and with regard to Spanish Corporate Income Tax (“CIT”), the most relevant changes relate to the three items described below. It should be noted, as a first comment, that some of these measures would apply immediately to tax periods initiated within 2016.

The measures, which will affect tax periods starting from January 1st 2017, are:

  • The non-deductibility of losses deriving from the transfer of holdings in entities, which have been eligible for the Spanish participation exemption (article 21 of the Spanish CIT Law)

Whereas the following amendments will enter into force for tax periods which started as from January 1st 2016:

  • A new limit to the offset of net operating losses (“NOLs”), which will apply to companies with a net annual turnover amounting to at least 20 million euros.
  • A new reversion method for portfolio impairments which were considered deductible in tax periods prior to 2013.

Non-deductibility of losses deriving from holding which were eligible for the Spanish participation exemption
(Applicable as from 2017)

For tax periods starting as from January 1st 2017, losses deriving from the transfer of holdings, which have been eligible for the Spanish participation exemption, will no longer be deducible. Note that, as a general rule, participation exemption would be available to holding of at least 5% or with a minimum acquisition value of 20 million euros. Additionally, in the case of holdings in non-resident companies, the subsidiary must have been subject to tax at a minimum rate of 10%[1].

With regard to the minimum one-year holding period, the provisions state that it is sufficient for the minimum holding percentage or the minimum acquisition value thresholds to have been attained at some point during the year previous to the transfer, for the loss in the transfer of such holding to be non-deductible.

Moreover, in the case of losses in holdings which were previously transferred by other entities within the same group and where such losses are not limited by the measure highlighted in the previous paragraphs, the deductible amount should be reduced in the positive income derived from such previous transfer, provided such income benefitted from an exemption or a deduction.

Finally, deductibility of losses is allowed when such loss arises from the winding-up of the subsidiary, provided such winding-up does not result from a restructuring. However, even in such cases, the deductible amount is limited since such amount should be reduced in the dividends received in the previous ten years, provided such dividends have not reduced the acquisition value of the holding and have benefitted from an exemption or a deduction.

Limits to the offset of NOLs and of certain tax credits[2]
(Applicable as from 2016)

The limits described below will apply to tax periods starting as from January 2016. It is worth noting that the Spanish CIT Law originally provided for NOLs to be offset with a general limit of 70% of the taxable base[3]. This limit had already been reduced to 60%, although only for 2016. The current provisions reduce this limit even further and would apply to tax years starting from January 1st 2016. Therefore:

  • Companies with a net yearly turnover of at least 20 million euros but below 60 million euros would be entitled to offset losses but only up to 50% of the taxable base[4].
  • * Companies with a net yearly turnover of at least 60 million euros would be entitled to offset losses but only up to 25% of the taxable base[5].
  • Companies not included in the previous categories would be entitled to offset losses in the 2016 tax year with the aforementioned 60% limit.

Moreover, a new joint limit of 50% of the tax liability has been enacted and would apply to Spanish tax credits for international double taxation, applicable over withholdings borne and over underlying taxation. This joint limit cover tax credits applicable under the general regime, the Spanish controlled-foreign-companies regime and the specific transitory regime applicable to holdings acquired during tax years beginning before January 1st 2015.

Reversion of portfolio impairments, which were deductible prior to 2013
(Applicable as from 2016)

As from 2013, portfolio impairments are no longer considered tax deductible. Consistently with this principle, portfolio impairments deducted in prior tax years were subject to a specific transitory reversion regime. The loss registered as a result of such impairment should be reverted in the tax years where the equity value of the subsidiary at the close of the tax year was above the value at the beginning of such year.

The amendments enacted provide for these portfolio impairments[6] to be reverted in a minimum amount of a fifth of such losses in each of the five consecutive tax periods beginning as from January 1st 2016. Therefore, reversion would no longer be delayed until there is a recovery in the value of the portfolio.


[1]       Subsidiaries entitled to the benefits of a tax treaty are deemed to fulfil this “subject-to-tax” requirement.

[2]       Certain credit or insolvency impairments and provisions for social protection systems and certain tax credits applicable to companies in loss, bankruptcy or insolvency situations.

[3]     Taxable base prior tp the recapitalization reserve.

[4]       As above.

[5]       As above.

[6]       Except as related to holdings in listed companies.