The Ministry of finance, also known as the Dark Lord, has given Corporate Tax Payers a Christmas present in the form of a retroactive tax reform, with effects from January 2016. These effects aim to broaden the taxable base by limiting several tax incentives applicable to Spanish companies.

Tax loss relief

Since the new Corporation Income Tax Law changed in 2015, the general rule is that Corporate Tax Payers can only offset prior year’s tax losses up to the 70 % of the current year taxable base.

Read more: New rules for the corporation tax loss relief in Spain for 2015

However, for the tax year 2016, this limit is reduced to the following amounts:

•  60% of the tax base for companies with a net turnover of the previous year less than € 20,000,000.
• 50% of the tax base for companies with a net turnover of the previous year of between € 20,000,000 and € 60,000,000.
• 25% of the tax base for companies with a net turnover of the previous year equal to or greater than € 60,000,000.

Tax credits

Likewise some deferred tax assets, namely, pending foreign tax credit relief, either for foreign withholding taxes or for the subsidiaries underlying tax, could only offset up to the 50 % of the 2016 tax liability. The unused tax credits could be carried forward for future periods.

Reversal of impairment losses from investment in other companies

Impairment losses from investments in subsidiaries are not deductible in Spain for tax purposes since 2013.

Read more: impairment losses on investments in subsidaries disallowed for tax purposes

However impairment losses from 2012 and before were tax deductible. The Law established a rule to recapture these losses which essentially said that they should be reversed and taxed as long as the net value of the subsidiary increased as a consequence of profits. If the subsidiary distributed dividends to prevent an increase in equity, the parent was forced to reverse the impairment loss anyway.

The new rule has now established a minimum period for the reversal of the impairment losses which were deducted for tax purposes in 2012 and before. Thus, the impairment loss pending of recapture at January first 2016, must be reversed in in five years, at a 20 % annually.