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The U.S. Foreign Account Tax Compliance Act (FATCA), enacted in 2010, aims to detect and prevent international tax evasion. Although FATCA focuses on financial institutions, its impact can extend to many global companies outside the financial sector if they are part of a network that falls within its scope of application or manage payments subject to this regulation.
Multinational companies, which already have the obligation to report, withhold payments and register beneficiaries, must adapt to the requirements of FATCA. These regulations require companies to evaluate beneficiaries differently, withhold certain gross income (which represents a change from previous processes) and provide additional information to the U.S. Internal Revenue Service
The FATCA withholding provisions were implemented as of July 1, 2014. Complying with FATCA may require significant adjustments to existing systems and processes in all business areas and regions, in addition to updating policies and procedures, as well as new tasks such as registration with the U.S. Internal Revenue Service
To facilitate compliance with FATCA, Spain and the United States have signed an intergovernmental agreement. This agreement states that financial institutions in both countries must provide their respective tax authorities with information about taxpayers from the other signatory country. Information will be automatically exchanged between tax authorities through a standard procedure.
On September 19, 2023, the Multilateral Agreement between competent authorities on the automatic exchange of information related to income received through digital platforms was published in the Official State Gazette.
Prior to this agreement, Law 13/2023, of May 24, introduced an amendment to the General Tax Law through a new Additional Provision. This provision establishes an additional obligation for the submission of information and due diligence with respect to the information statement of platform operators subject to mutual assistance procedures.
The recent agreement aims to facilitate the exchange of information between different administrations on the revenues generated from the provision of accommodation, transportation and other personal services. It also covers the exchange of data related to revenues earned from the sale of goods and the leasing of means of transport managed through digital platforms.
On September 18, 2023, the multilateral agreement between competent authorities regarding the automatic exchange of information on mechanisms for circumventing the common communication standard and opaque offshore structures was published in the Official State Gazette.
This agreement, which complements Law 13/2023, of May 24, introduces an additional obligation to report information on cross-border tax planning mechanisms. This significant change in international tax transparency strengthens states' capacity to combat tax evasion globally.
In particular, the agreement aims to prevent professional advisors and other intermediaries from designing, promoting or facilitating extraterritorial structures and mechanisms that non-compliant taxpayers could use to evade the correct communication of information to the tax authorities in their jurisdiction of residence, even under the Common Information Standards.
In July 2013, the OECD published a 15-point Action Plan to address Tax Base Erosion and Benefit Transfer (BEPS) by multinational companies. This Action Plan establishes the necessary measures to combat BEPS, defines deadlines for its implementation, and indicates the resources and methods required for its application.
Some jurisdictions and the European Union have begun to integrate these actions into their national laws. In addition, the European Union adopted two Anti-Tax Avoidance Directives (ATAD and ATAD 2), which establish minimum standards to combat tax evasion. The ATAD Directive had to be incorporated into national laws before December 31, 2018, and certain provisions of ATAD 2 had to be transposed before December 31, 2019.
Although Spanish legislation was already largely aligned with ATAD, modifications were introduced to Corporate Tax through Law 11/2021, on the prevention and fight against tax fraud and on the transposition of the ATAD, in relation to CFCs (Controlled Foreign Companies) and exit tax regulations:
Amendments to the CFC Regime: The scope was expanded to include income earned by foreign entities that are owned by the taxpayer, as well as income from their permanent establishments. New categories of income subject to imputation were also introduced under this regime, such as dividends, financial leasing transactions and financial activities.
Departure Tax: The exit tax ensures that, when assets or tax residence are transferred outside the State's jurisdiction, capital gains generated in the territory are taxed, even if they have not been realized. The regime was modified to allow the payment of the tax to be divided over five years when the transfer is made to another member state of the European Union or to a country in the European Economic Area. In addition, the tax value determined by another member state is accepted in the event that the transfer of goods has been subject to an exit tax.
RDL 4/2021: On March 9, 2021, the Spanish Government approved Royal Decree-Law 4/2021, which amends the Corporate Tax Act and the Personal Income Tax Act with regard to hybrid mismatches. This RDL incorporates the anti-hybrid standards of EU Directive 2016/1164 (ATAD), as amended by Directive 2017/952 (ATAD 2). The RDL came into effect on March 11, 2021 and applies to fiscal years not concluded on that date.
The Royal Decree-Law covers the following situations:
With the implementation of the European Directive DAC 7 in Spanish legislation, new information and diligence obligations have been established for operators of digital platforms. This regulation affects all those platforms that facilitate the sale of products, the provision of services, the rental of real estate or any means of transport by sellers.
The operators of these platforms are required to collect, verify and report to the tax authorities detailed information about the sellers subject to declaration who use their services. In addition, records and supporting documentation are required to be kept for a period of ten years.
All platforms that fall within the scope of application of the Directive, including those based in non-EU countries, must be registered in a member state.
A system of rigorous sanctions has been implemented for those platforms that do not meet established information requirements. In addition, an automatic exchange of information is envisaged between the tax authorities of the Member States of the European Union.
Starting in 2023, taxpayers who trade cryptocurrencies will be subject to certain reporting obligations. These obligations will apply to the following cases:
The regulatory framework established by DAC Directive 6 imposes the obligation to inform tax authorities about cross-border agreements involving EU countries or between them and third countries, whenever such agreements can be considered as aggressive tax planning.
The primary responsibility for complying with these information requirements lies with the intermediary involved in the transaction. However, if the transactions are carried out without the intervention of an intermediary, if the intermediary is outside the European Union or if it is protected by legal privilege, the obligation to report may fall directly on the taxpayer.
The EU DAC 6 Directive identifies certain characteristics, known as “distinctives”, that determine whether a cross-border agreement should be the subject of communication. Although Spanish legislation is largely aligned with the Directive, it has some important differences. For example, under the C1 badge, Spanish legislation requires the communication not only of direct transactions, but also of those that are carried out indirectly.
The three provinces that make up the Basque Country (Álava, Guipuzcoa and Vizcaya) have an “economic agreement” with the central Government of Spain, established and regulated by Law 12 of May 23, 2002. This agreement gives these provinces the power to establish their own tax regimes.
Law 12 of May 23, 2002 includes specific provisions on Corporation Tax that make this region especially attractive to companies. Since January 1, 2014, three different IS laws have been implemented for each of the Basque provinces, applicable to tax periods starting from that date.
In addition, it is important to mention that the Provincial Councils of the Basque Country have recently introduced changes to the regulations of the IS. The tax reform was approved in March 2018 for Álava and Vizcaya, and in May 2018 for Guipuzcoa, although these changes apply to tax periods beginning on or after January 1, 2018.
As of January 1, 2019, the general tax rate has been set at 24%.
As of January 1, 2019, the general tax rate for small companies has been set at 20%.
A small company is considered to be one that meets the following requirements during the year prior to the application of the special tax regime:
Other additional benefits include:
As of January 1, 2019, the general tax rate for microenterprises is set at 20%.
A microenterprise is considered to be one that meets the following requirements during the year prior to the application of the special tax regime:
Other additional benefits include:
For holding companies, which include, but are not limited to, real estate companies, the following tax rates apply:
For holding companies, including real estate companies, to benefit from special tax rates, they must meet the following requirements:
The tax regime for holding companies and similar companies establishes the following rules:
Negative tax base compensation is subject to the following rules:
Intangible assets should be considered to have a defined useful life. The amortization of these assets is tax-deductible over their established useful life. If the useful life cannot be determined, the amortization is deductible up to an annual maximum limit of 10% under the following conditions:
According to the amendment to the Account Auditing Act, goodwill amortize over a ten-year period. However, this accounting amortization is not tax-deductible; the corresponding accounting-fiscal adjustment must be made.
From a tax point of view, the amortization of goodwill is deductible up to an annual maximum limit of 12.5% if the following conditions are met:
In addition, if a loss due to impairment of goodwill is recognized or if a transfer of goodwill occurs, the previously applied tax amortization must be reversed.
Financial goodwill is tax-deductible up to a maximum annual limit of 12.5% under the following conditions:
To calculate the financial goodwill, the own funds, assets and rights reflected in the group's consolidated annual accounts must be considered, if the company from which the shares were acquired has a stake in another company.
The part of the financial goodwill corresponding to income earned by previous owners who benefited from the double tax exemption of income obtained from the transfer of shares is not tax-deductible.
The amounts deducted for this concept increase the tax base if there are losses due to impairment (see section on Impairment Losses).
Requirements for Actions:
The periods of depreciation and amortization of assets under the special tax regime are shorter than those established by state corporate tax legislation.
Income obtained from the sale of tangible or intangible fixed assets can be deducted from the tax base under the following conditions:
As of July 1, 2016, companies can deduct 70% of the income (income minus amortizations and expenses) obtained from the transfer of intellectual or industrial property rights, provided that the company has created such intellectual or industrial property on its own.
Own Transfer: The 70% reduction is applicable if the intellectual or industrial property has been developed internally by the company.
Property Acquired or Developed by Related Companies: If the property has been partially acquired or developed by related companies, the 70% reduction will apply only if the expenses incurred with related parties do not exceed 30% of the total expenses incurred in the development by third parties or by the company itself. If this proportion exceeds 30%, the reduction will be adjusted proportionately.
The following features have also been introduced:
In Álava and Vizcaya, companies can reduce their tax base by 5% of the purchase price or cost of production of intellectual or industrial property assets, provided that they are the full owners of these assets and they are intended for the development of business activities. This reduction cannot exceed 0.5% of the returns obtained in business activities in which these assets are used. This additional reduction is not applicable in Guipuzcoa.
The new tax regulations limit the patent box regime to income generated by the transfer of the right to use or commercialize:
The regime excludes rights to information related to industrial, commercial or scientific experiences (known as “know-how”).
In accordance with Directive 2016/1164 of the European Union, the tax deductibility of financial expenses is subject to the following limitations:
Deduction Limits:
Drag Method:
Compatibility with the Undercapitalization Rule:
Indebtedness with Related Companies:
Request for a Different Coefficient:
Non-Deductible Expenses:
Representation expenses, gifts and certain types of transportation can be tax-deducted, subject to certain restrictions:
A specific limit is established for the deduction of financial expenses derived from debts incurred for the acquisition of shares in the capital or equity of any type of company.
The financial expenses generated by these debts are deductible up to a limit of 30% of the acquiring entity's business profits. This limit excludes the business profits of any company that can merge with the acquirer or be integrated into its fiscal group for four years following the acquisition. In addition to this specific limit, financial expenses are subject to the general tax deductibility limit.
The specific limit will not apply if the debt associated with the acquisition of the shareholding does not exceed 70% of the acquisition price and is progressively reduced to a level not exceeding 30% of the acquisition price during the years following the acquisition.
As of January 1, 2019, donations made in the Basque Territory of Vizcaya are considered non-deductible expenses for corporate tax purposes. In the case of Álava, these regulations came into force as of January 1, 2022.
However, it is possible to apply a deduction for donations made to non-profit entities that meet certain requirements. This deduction is 30% of the amount of the donation. For donations earmarked for priority sponsorship activities, the deduction can amount to 45% of the amount donated. These deductions are subject to the general time and quantitative limits applicable to tax deductions.
In Gipuzkoa, charitable donations continue to be considered as deductible expenses for corporate tax purposes.
Losses due to impairment of the value of shares in companies can be tax-deducted under the following conditions.
For shares of less than 5% in unlisted companies, or in listed companies that are part of the group, the consolidated group, or associates, you can deduct the difference between own funds at the beginning and end of the financial year, proportional to the participation held. This deduction must take into account any capital contribution or reimbursement made during the period.
For shares equal to or greater than 5% in unlisted companies, or 3% in listed companies, the deduction is based on the difference between the purchase price and equity, proportional to the share held. This calculation must be adjusted for tacit capital gains at the valuation date.
The own funds to be considered are those recorded in the company's consolidated annual accounts.
In the Basque Country, an exemption mechanism is established to avoid double taxation in relation to dividends and income obtained from the transfer of shares in companies, both resident and non-resident in Spain
Dividends and Income of Companies Resident in Spain
For the Full Exemption:
For the Partial Exemption:
For the exemption to be applicable, the company that distributes the dividends must be subject to a tax similar to the Basque IS (in Vizcaya) with a tax rate not lower than 10%. The exemption does not apply to companies that are taxed at a tax rate lower than 10%, even if they are in countries that have a Double Taxation Avoidance Treaty with Spain.
In the Basque Country, capital gains derived from the sale of shares in resident and non-resident companies are not integrated into the tax base, provided that the established requirements for the exemption of dividends are met. These requirements must be maintained throughout the period in which the shareholding is held, with the exception of the percentage of participation, which must be met on the day of the transfer (5% or 3% for listed companies).
In accordance with Corporate Tax regulations, for the exemption to apply, the company that distributes the dividends must be subject to a tax with characteristics similar to the Basque Social Security (in Vizcaya) with a tax rate of no less than 10%. Consequently, the double taxation tax exemption will not apply to companies that are taxed at a tax rate lower than 10%, even if they are in countries that have a Double Taxation Avoidance Treaty with Spain.
If any of the requirements are not met, the part of the income corresponding to a net increase in undistributed benefits will not be integrated into the tax base in proportion to the profits generated in the years in which the requirements are met. The part not corresponding to this net increase will be assumed to be generated linearly during the holding period of the participation.
For resident subsidiaries that do not meet the requirements of being subject to IS or for the development of economic activities, an amount equal to the net increase in undistributed profits attributable to participation in the subsidiary, generated during the time in which the participation was maintained, will not be integrated into the tax base (up to the calculated income limit), excluding the part that was not integrated into the tax base by compensating negative tax bases.
The exemption from income earned by permanent establishments will not apply in the following cases:
In the Basque Country, income derived from variable interest on participatory loans is not included in the tax base if they are linked to the borrower's benefits. However, this exemption does not apply to remuneration generated by fixed interest.
For variable interest income to be exempt, the following requirements must be met:
Variable interest must not exceed:
Interest not included in the tax base is not deductible, and is subject to the general tax rate of 19%.
Some measures have been introduced to improve the tax treatment of structures based on increasing own funds and reducing the need to resort to indebtedness. These measures are:
Companies have the possibility of reducing their tax base by an amount equivalent to 15% of the increase in own funds for tax purposes, compared to own funds in the previous year. This amount must be used for a non-distributable reserve for a minimum of five years. During this period, the company's own funds must remain constant or increase, except in the case of a decrease due to accounting losses.
The application of this deduction cannot result in a negative tax base or an increase in it. However, amounts not deducted due to insufficient tax base may be carried over to subsequent tax periods.
Companies have the option of reducing their tax base by assigning accounting results to a special reserve for “benefit equalization”. This reduction can reach up to 10% of the part of the results that can be freely distributed according to corporate legislation, with a limit of 15% of the tax base for the year. In addition, the balance of the special reserve cannot exceed 25% of own funds for tax purposes at any time.
This reserve is intended for the compensation of negative tax bases that have yet to be compensated. Consequently, negative tax bases that are pending cannot be offset in future years, thus allowing for the compensation of those tax bases earlier. If within ten years the company does not generate negative tax bases, the reserve will be considered taxable income. This adjustment involves a temporary deferral of the tax.
In Álava and Vizcaya, companies have the possibility of reducing their tax base by 65% of their annual accounting profits. In Guipuzcoa, the reduction is 60%. The benefits allocated to this reduction should be allocated to a special reserve for the promotion of entrepreneurship and productive activities, up to a maximum amount of 45% of the tax base. In addition, the balance of this reserve may never exceed 50% of own funds for tax purposes.
This reserve is not freely available and must be used within three years for specific purposes, such as the acquisition of new non-current assets, investments that generate tax credits for environmental investments or investments in developing companies.
A 10% tax credit is granted for investments in new tangible fixed assets, provided that certain requirements are met. The minimum amortization period for these assets, excluding computer equipment, must be five years. In the case of improvements or investments in leased assets made by lessees, the applicable tax credit is 5%.
In order to benefit from this tax credit, the investment must exceed 10% of the book value of the tangible fixed assets, buildings and computer programs registered in the previous year, discounting depreciation or amortization.
This incentive is optimized when the annual amount of investment in new tangible fixed assets exceeds 5 million euros, regardless of whether this investment exceeds the 10% limit mentioned above.
Companies can benefit from a 30% tax credit on expenses incurred in R&D activities. If the expenses exceed the average of the company's R&D expenses for the previous two years, the tax credit is increased to 50% on the amount that exceeds that average.
Additionally, a 20% tax credit can be obtained for the following concepts:
In addition, a 10% tax credit applies to investments in tangible (except buildings) and intangible fixed assets intended exclusively for R&D activities.
The tax regulations of the Basque Country allow taxpayers who participate in the financing of R&D projects and technological innovation to obtain a specific tax deduction.
The funder of the project can apply a deduction equivalent to 1.2 times the amount invested in financing the project. Any amount that exceeds this limit can be used as a deduction by the taxpayer carrying out the project.
Taxpayers can benefit from a 20% or 15% tax credit on expenses incurred in technological innovation activities, depending on the nature and specific requirements of those expenses.
Companies can take advantage of a 30% tax deduction for investments in equipment that appears in the Basque List of Environmental Technologies, provided that certain established requirements are met.
In addition, a 15% deduction is offered for investments and expenses related to tangible fixed assets intended for environmental conservation and energy savings, provided that the specified requirements are respected.
To qualify for the employment creation deduction, the average increase in the workforce must correspond to workers with permanent contracts whose salaries are 70% higher than the interprofessional minimum wage.
To apply this deduction, the company must increase its average workforce with permanent contracts by at least the same number of employees who generated the deduction and maintain this increase for a period of three years.
In Vizcaya and Álava, investments in micro, small and medium-sized enterprises (SMEs) can benefit from a deduction of 25% from the tax base. This deduction applies to the amounts satisfied by the subscription or acquisition of shares or shares in such companies.
For investments in innovative companies or those whose corporate purpose is directly linked to the digital economy, the deduction increases to 35% of the amounts satisfied by the subscription or acquisition of shares or shares.
In Vizcaya, a deduction is offered for expenses incurred in vocational training activities related to the silver economy and the solidarity economy.
The deduction can reach up to 10% of the expenses incurred in each financial year. In certain specific cases, this deduction can be increased to 15%.
As of January 1, 2023, Vizcaya has implemented significant improvements in tax incentives aimed at promoting culture.
Taxpayers have the possibility of applying a tax deduction based on production costs, as well as on expenses related to obtaining copies and publicizing the works. The applicable deduction rates are as follows:
In addition, if the production is carried out completely in Basque, the deduction percentage will increase by 10 percentage points.
This deduction is subject to a quantitative limit of 50%, after applying the 70% and 35% deductions.
A deduction of 5% is applied to the tax rate corresponding to investments made in book publishing.
In Vizcaya, the deduction is calculated on the direct costs associated with the artistic, technical and promotional nature of the shows. The deduction percentage is 30% of the expenses incurred, increasing to 40% if the show is performed in Basque.
The total deduction that can be applied in each tax year is limited to 1 million euros per taxpayer. In addition, the sum of the deduction and the grants received may not exceed 80% of the total expenses.
This benefit is subject to a quantitative limit of 50%, once the 70% and 35% deductions have been applied.
In Vizcaya, the option is established so that funders of audiovisual projects and live performing arts and musical shows can benefit from tax deductions. However, these deductions for funders may be totally or partially incompatible with the deductions to which the taxpayer performing the play or show is entitled.
The requirements for this deduction are as follows:
As of January 1, 2024, significant improvements will be implemented in Álava and Guipuzcoa with respect to fiscal incentives aimed at cultural promotion.
Taxpayers can benefit from a tax deduction based on production costs, as well as the expenses associated with obtaining copies and advertising. The applicable deduction rates are as follows:
In addition, if the work is filmed completely in Basque, the deduction percentage increases by 10 percentage points.
The 50% limit applies to this deduction after considering the 70% and 35% deductions.
A 5% deduction will be applied to the tax rate.
In Álava and Guipuzcoa, the basis for calculating this deduction is determined based on direct expenses related to artistic, technical and promotional aspects. The deduction percentage will be 30% of the expenses incurred, and 40% if the show is performed in Basque.
The deduction generated in each tax period cannot exceed 1 million euros per taxpayer. In addition, the total deduction, together with any grant received, cannot exceed 80% of the expenses.
The 50% limit applies to this deduction after considering the 70% and 35% deductions.
In Álava and Guipuzcoa, the possibility has been introduced for funders of audiovisual projects and live shows to benefit from the above-mentioned tax deductions. However, the deduction corresponding to the funder will be totally or partially incompatible with the deductions to which the taxpayer who performs the audiovisual work or the live show is entitled. It is necessary to meet the following requirements:
This deduction is also subject to a quantitative limit of 35%.
The maximum period for the use of tax credits is extended to 30 years.
The following quantitative limits are established for the application of tax credits:
Tax deductions other than deductions for R&D, technological innovation, environmental conservation, and audiovisual works and live shows: The limit is 35% of the amount resulting from reducing the tax base multiplied by the applicable rate for deductions to avoid double taxation.
Tax deductions for R&D and technological innovation: The limit is 70% of the amount resulting from reducing the tax base multiplied by the applicable rate for deductions to avoid double taxation. If the company applies other taxes other than deductions for R&D and technological innovation, the 70% limit will be applied to the amount resulting from reducing the tax base multiplied by the applicable tax rate in the deductions to avoid double taxation, after deducting the deductions to which the 35% limit applies.
Tax deductions for conservation and improvement of the environment, energy savings, and audiovisual works and live shows: The limit is 50% of the amount resulting from reducing the tax base multiplied by the applicable rate for deductions to avoid double taxation. If the company applies other deductions, such as those for environmental conservation, the 50% limit will be applied to the amount resulting from reducing the tax base multiplied by the applicable rate in deductions to avoid double taxation, after deducting the deductions to which the 35% and 70% limits apply.
Corporate tax regulations in the Basque Country establish a minimum tax of 17% to calculate the effective share of corporate tax. This means that the deductions applied during the tax period cannot reduce the effective contribution below this minimum. However, this limit does not apply to deductions for R&D, environmental conservation, or to deductions for audiovisual works and live shows in Vizcaya.
In addition, if an entity maintains or increases the average number of its employees with an indefinite contract compared to the previous year, the minimum tax percentage will be reduced by two points.
Therefore, the application of deductions to calculate the effective share of a company with positive tax bases (except deductions for R&D, for environmental conservation and, in Vizcaya, for audiovisual works and live shows) cannot result in an effective contribution lower than the following types:
The reduced minimum tax rate applies to those companies that maintain or increase their average number of employees with an indefinite contract compared to the previous year.
According to the central Government of Spain, companies in the Basque Country must adhere to the same regulations as those of the Common Territory regarding the formation of fiscal groups, the definition of dominant companies and subsidiaries, and the tax treatment of internal transactions within these groups.
Therefore, the recent tax reform of the Spanish Common Territory will also apply to Basque tax groups. In this context:
In accordance with the regulations of the Spanish Common Territory, if the parent company is a non-resident entity, one of the companies in the group must be designated as a representative and is responsible for complying with the group's statutory requirements and formalities. According to Basque regulations, the company representing a Basque tax group must meet one of the following requirements:
However, if the non-resident parent company designates a company of the Basque tax group as its representative, it must be subject to the tax regulations applicable to the company in the group with the highest turnover in the previous tax period.
On the occasion of the celebration of the final of the UEFA Women's Champions League 2024 on Saturday, May 25, 2024, and the UEFA Europa League 2025 in May 2025 at the San Mamés stadium in Bilbao, Bizkaia has implemented a special tax regime for these international sports competitions.
The following income related to the holding of these events will be exempt:
The holding of these competitions will be considered a priority activity during the years 2024 and 2025.
These tax provisions will be in effect until December 31, 2025 for individuals and until January 1, 2026 for other entities.
In accordance with the provisions of the Council's Directive (EU), of July 12, 2016, starting with the 2018 financial year, the exit tax regime is modified for cases of change of residence and cessation of permanent establishments. Instead of the deferral regime, a fractionation system is implemented, which allows payment over several periods. This division is made over the tax periods concluded in the five years following the exit.
In the three Basque territories, taxpayers are required to declare assets located abroad, such as bank accounts, shares, real estate or vehicles. This declaration must be filed annually using Form 720, in the period between January 1 and March 31. Failure to comply with this obligation entails the imposition of sanctions.
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