The advantages of a tax group in Spain should not be overlooked. The possibility to offset profits and losses of the different companies pertaining to the group, the disregard to internal dealings and the deferral of the profits on intra-group transactions are very relevant.
The new regulations of the Spanish Corporate Income Tax that came into force in January 2015 have modified several aspects of the taxation of the tax groups. The purpose of this article is to outline the impact of these modifications for entities belonging to a foreign investor or to a multinational group.
The most important modification regards the so-called perimeter of the tax group, that is, the companies that qualify to be included in such group. Before the new regulations came into force, to be eligible as parent company of the group, such company must be resident in Spain and hold, at least, a 75 % of the share capital of the subsidiaries. The new rules have clarified that besides the said percentage of participation, which remains unchanged, the parent must also have at least 75 % of the voting rights.
But more importantly, the parent company no longer needs to be resident in Spain for tax purposes. In other words, a tax group in Spain can be headed by a foreign holding company, as long as it meets the participation explained. So, before 2015 the following structure did not qualify for group taxation:
However, as from January 2015 said structure would qualify for group taxation, but obviously only the Spanish companies would belong to the tax group:
Other interesting consequence of the new rule is that Spanish “orphan” companies of a foreign parent company must be included in the existing group of the latter. For instance, the following chart shows how before 2015 a Spanish orphan company could not be included in a tax group of their parent foreign company:
Spain Co 4 could not be included in the tax group because the parent company was non-resident. However, as from 2015, since this requirement has been eliminated the tax group will include all the Spanish companies:
Other interesting change in the law concerns the Spanish subsidiaries held by the group through nonresident companies (i.e. subsidiaries indirectly held by the parent). Before 2015, said subsidiaries were not eligible to be included in the group, because a nonresident entity was involved in the chain. However, as from 2015 this fact is no longer relevant. So currently a Spanish company indirectly held through a foreign entity would qualify to be included in the group as long as the indirect shareholdings of the parent is, at least, 75 %.
Before 2015, Spain Co 4 could not belong to the tax group, because the holding of the group had an indirect ownership through a foreign entity. However, as from 2015 the group would have the following composition:
A mention to multiple tax groups belonging to the same non-resident parent company. It is not infrequent for large multinational groups to have two or more groups of companies. For taxation purposes, before 2015 each of these groups were treated as separate tax groups; see for instance this chart:
The reason was that each group should had a Spanish parent company. In 2015 onwards, it will no longer work like that so only a single tax group will exist including all the Spanish companies:
Finally, it is also to be noted that with the new rules a Permanent Establishment of a foreign entity could act as he holding entity of a Spanish tax group.