July 2012

tax

new tax measures introduced by royal decree-law 20/2012

Royal Decree-Law 20/2012 of 13 July (“RD-Law 20/2012”), has introduced a series of modifications to Spanish tax legislation, especially regarding Value Added Tax (“VAT”) and Corporate Income Tax (“CIT”).


 1. value added tax

 2. corporate income tax

 2.1. Temporary restrictions on the application of carried forward losses

 2.2. Payments in advance on account of CIT

 2.3. General restriction on the deduction of financial expenses

 2.4. Depreciation of intangible assets with an indefinite useful life

 2.5. Special tax on dividends and income deriving from the sale of shares in non-resident companies

 3. personal income tax

 3.1. Tax deduction for investment in the taxpayer’s permanent residence

 3.2. Withholding rates on certain items of income

 3.3. Other measures

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1. value added tax

RD-Law 20/2012 increases the general and the reduced VAT rates from 18% to 21% and from 8% to 10%, respectively.

Also, a number of transactions that were previously taxed at the reduced rate are now taxed at the general rate. These include the sale of flowers and ornamental plants, certain hotel services, tickets for theatres, circuses, bullfighting events and other spectacles and attractions, services provided by artists, funeral services, hairdressing services, digital television and certain transactions on art objects.

Services consisting in the renovation and repairing works to housing are subject to the reduced rate of 10%, provided that the cost of the materials supplied by the person who carried out the works does not exceed 40% of the taxable base[1].

The super-reduced tax rate of 4%, which is applied to essential goods and services, has not been increased.

In relation to the sale of houses, buildings or parts of buildings that may be used as residences, including up to two parking spaces annexed to the dwelling that are sold at the same time as the dwelling itself, the super-reduced rate of 4% will continue to apply until 31 December 2012.

RD-Law 20/2012 also increases the tax rates applicable under two of the special regimes established in the VAT Law: the special regime for agriculture and fisheries and the so called “régimen especial del recargo de equivalencia”.

[1] This threshold was set in 33% previously.

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2. corporate income tax

2.1. Temporary restrictions on the application of carried forward losses

As a temporary measure, just for tax periods beginning in 2012 and 2013, taxpayers with an annual turnover exceeding EUR 6,010,121.04 (calculated according to article 121 of Law 37/1992) in the twelve months previous to the tax periods beginning in 2012 or 2013 must apply the following rules:

  • CIT taxpayers with a turnover between EUR 20 million and EUR 60 million during the twelve previous months: carried forward losses are limited to 50% of the taxable income.
  • CIT taxpayers which turnover is EUR 60 million or higher during the twelve previous months: carry-forward losses are limited to 25% of the taxable income.

Therefore, RD-Law 20/2012 toughen the temporary restrictions on the carried forward losses offsetting which were initially introduced by Royal Decree-Law 9/2011, which established limits of 75% and 50% of the taxable income, respectively, to the above referred CIT taxpayers.

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2.2. Payments in advance on account of CIT

As a temporary measure, just for tax periods beginning in 2012 and 2013, RD-Law 20/2012 increases the payments in advance on account of CIT (which are payable in April, October and December) with effects as of 15 July 2012. Specifically:

  • Where the payments in advance are calculated on the basis of the current taxable income (article 45.3 of the Corporate Income Tax Law): (i) 25% of tax-exempt foreign dividends must be included as taxable income, and (ii) the percentages applicable on the current taxable income to calculate the payments on account of CIT are increased as described in the following table:

Net turnover in the 12 months prior to the start of the tax period

Fraction of the tax rate to determine the percentage applicable on the taxable basis

Less than EUR 10,000,000

5/7 (i.e., 21% when applied to the general rate)

EUR 10,000,000 - EUR 19,999,999

15/20 (i.e., 23% when applied to the general rate)

EUR 20,000,000 - EUR 59,999,999

17/20 (i.e., 26% when applied to the general rate)

EUR 60,000,000 or more

19/20 (i.e., 29% when applied to the general rate)

  • The minimum payment in advance on account of CIT for those taxpayers whose turnover in the 12 months prior to the start of tax periods beginning in 2012 or 2013 is EUR 20 million or more is increased. In April, October and December, they must pay in advance on account of CIT at least an amount equal to 12% (previously this percentage was 8%) of their accounting income accrued during the first three, nine or eleven months of the relevant calendar year. Only previous payments in advance on account of CIT may be deducted from this minimum payments (RD-Law 20/2012 eliminates the possibility to take into account carried forward losses pending to offset). The percentage to calculate this minimum payment in advance is halved to 6% if at least 85% of the accounting income in the first three, nine or eleven months of each calendar year derives from subsidiaries or permanent establishments and takes the form of: (i) dividends and capital gains from the sale of shares in non-resident companies that are entitled to apply the exemption set out in article 21 of the CIT Law; (ii) income obtained through a permanent establishment entitled to apply the exemption set out in article 22 of the CIT Law; and (iii) dividends or a share in the profits of companies resident in Spain to which the 100% tax credit set out in article 30.2 of the CIT Law applies.

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2.3. General restriction on the deduction of financial expenses

Royal Decree-Law 12/2012, which introduced several tax and administrative measures to reduce the public deficit (“RD-Law 12/2012”), replaced the thin capitalisation rule with a general restriction on the deduction of financing expenses. As a result, net financing expenses exceeding 30% of the operating profit in a given tax year will not be deductible for CIT purposes when they exceed EUR 1 million. RD-Law 12/2012 established that the general restriction on the deduction of financing expenses did not apply to entities that do not belong to a group of companies (as defined in article 42 of the Commercial Code) and to financial entities. According to RD-Law 20/2012, only credit entities and insurance companies are excluded from the general restriction on the deduction of financing expenses.

In addition, RD-Law 20/2012 clarifies that for CIT taxpayers with a tax period of less than a year, the threshold on their unlimited deductible financial expenses will be the result of multiplying EUR 1 million by the proportion that their tax period represents of the calendar year.

Lastly, the general restriction on the deduction of financing expenses will not apply when an entity is dissolved and does not transfer the right to deduct financial expenses to another entity.

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2.4. Depreciation of intangible assets with an indefinite useful life

As a temporary measure, just for tax periods beginning in 2012 and 2013, RD-Law 20/2012 limits the tax deduction for the annual maximum depreciation of intangible assets with an indefinite useful life to 2% of their value (previously it was 10%).

2.5. Special tax on dividends and income deriving from the sale of shares in non-resident companies

RD-Law 12/2012 had established a new and temporary special tax to ease the repatriation of income. In particular, this special 8% tax applies on dividends and capital gains derived from the sale of shares in non-resident companies provided that (i) the relevant income is accrued before 30 November 2012; (ii) the direct or indirect shareholding in the relevant non-resident company is 5% or higher, and (iii) certain other requirements are met. Now, RD-Law 20/2012 introduces a new special tax of 10% applicable when these other requirements are not met.

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3. personal income tax

3.1. Tax deduction for investment in the taxpayer’s permanent residence

The additional tax credit applicable to taxpayers who acquired a dwelling before 20 January 2006 is eliminated.

3.2. Withholding rates on certain items of income

RD-Law 20/2012 increases 15% to 19% the withholding rate applicable to income from professional activities and income obtained from giving courses, conferences, seminars or similar teaching events, or income obtained from the performance of literary, art or scientific works.

However, with temporary effects from 1 September 2012 to 31 December 2013, will transitorily be 21%.

3.3. Other measures

RD-Law 20/2012 lays down that, during the tax periods initiated in 2012 or 2013, the CIT limits on the annual goodwill depreciation and the annual depreciation of intangible assets with an indefinite useful life will not be applicable to personal income taxpayers whose turnover is less than EUR 10 million.

16 July 2012

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The information contained in this Newsletter is of a general nature and does not constitute legal advice