IS – Unconstitutionality of legislation 3/2016

The Spanish National Audience, a Spanish high Court, has recently raised an exception of unconstitutionality before the Constitutional Court (CC), relating to Royal Decree-Law 3/2016, dated 2 December 2016.

 This legislation introduced some relevant restrictions to the deduction of expenses and to certain tax credits in Corporate Income Tax (CIT) that resulted in an increase in the taxation in CIT since year 2016.

 The main limitations were the following:

–      Limitation in offsetting tax losses from previous years which applies to companies and to tax consolidation groups with a turnover over 20 million euros (limitation to 50% on the taxable income if the turnover is over 20 million euros, and to 25% for CIT taxpayers with a turnover exceeding 60 million euros),

–      Automatic reversal for CIT purposes, within a 5-year period, of the impairment on investments, irrespectively of the actual equity situation of the interest impaired.

  • Limitation of the double taxation tax credit to 50% of the CIT gross tax payable.

 In this case, as it already was the case for Royal Decree-Law 2/2016, which increased the CIT prepayments, that were declared unconstitutional by the CC, the National Audience challenges the use of a Royal Decree-Law for those limitations, which in accordance with the Spanish Constitution shall only be used in the case of extraordinary and urgent need, to regulate essential elements of this tax, while this regulation must be introduced by a proper Law.

 If the Constitutional Court also declared Royal Decree-Law 3/2016 as unconstitutional, the large CIT taxpayers would qualify to offset tax losses from previous years with the general 70% limit on the taxable income, instead of the reduced 50% and 25% limits. Therefore, the CIT taxpayers that were affected by this limitation would be entitled to claim the refund of the CIT liabilities paid in excess and, if applicable, the late payment of interest, deriving from this legislation for the years still open to a tax audit (in principle, 2018 to 2021).

 Nevertheless, it should be noted that the recent sentences from the Constitutional Court on tax issues have limited their effects to those cases where the tax returns affected by the legislation declared unconstitutional have been previously appealed and no final judgement has been issued yet on this proceeding at the date of effects of the Sentence from the CC.

 With this background, we recommend to perform a previous analysis of the additional taxation actually borne derived from this legislation, in order to conclude on whether an appeal of the CIT return filed that could be affected by a favourable sentence from the CC, in order to obtain the refund of the CIT liabilities paid in excess and or, if applicable, the late payment of interest, as it happened for Royal Decree-Law 2/2016.


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Global Mobility – Digital Nomad

The Digital Nomad Visa is available for non-EU citizens (either employed or self-employed) who want to establish themselves in Spain and work remotely for foreign companies. The non-EU citizen who intends to carry out an employment or professional activity at a distance and who can prove any of the following circumstances: graduate or postgraduate from a university or business school of recognized prestige, has professional training and accredits more than 3 years of professional experience.

For the regulation of this visa, the Law differs depending on whether the applicant is an employee or a self-employed person, in this case, the applicant can only work for companies located outside Spain or self-employed workers, the professional can work for foreign companies and for companies located in Spain without exceeding 20% of the total turnover of their professional activity.

Applicant requirements:
– Be over 18 years of age and not to be irregularly present in Spanish territory
– Not to have a criminal record in Spain and in the countries where he/she has resided during the last two years.
– Not to appear as rejectable in the territorial space of countries with which Spain has signed an agreement in such a sense.
– To have a public insurance or a private health insurance arranged with an authorized Company in Spain
– Have sufficient economic means for themselves and their family members during their period of residence in Spain.

Company requirements:
– The existence of a real and continuous business activity for at least one year of the company or group of companies whom the applicant maintains an employment or the professional relationship.
– Documentation proving that the employment or professional relationship can be carried out remotely.
Depending on the employment or professional relationship:
– In the case of an employment relationship, the existence of this relationship between the worker and the company not located in Spain for at least the last three months prior to the submission of the application must be accredited, as well as documentation proving that the company allows the worker to perform the work activity remotely.
– In the case of the existence of a professional relationship, it must be proven that the employee has maintained a professional relationship with one or more companies not located in Spain for the previous three months, as well as documentation proving the terms and conditions under which he/she will carry out the professional activity at a distance.

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International Taxation. Minimum taxation of multinationals (Pillar 2)

The Spanish Tax Administration has published prior public consultation on the transposition into Spanish law of Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (Pilar 2).

Directive (EU) 2022/2523 establishes a top-up tax for multinational groups with consolidated income of more than 750 million euros through two interlocked rules, (i) the Income Inclusion Rule (IIR) and ( ii) Undertaxed Profit Rule (UTPR), in support of the former, which guarantee that the income obtained by said multinational groups located in Member States of the European Union or by multinational groups whose parent company is located in a Member State of the European Union (in the latter case, whether the group companies are located in the European Union or outside it) effectively pay a global minimum rate of 15%.

Regarding subsidiaries in Spain of this type of groups, it must be noted that if the UTPR rule applies to its group because it is located in a non-EU country that does not apply an admissible IIR, or in a country with low taxation, they will be taxed by said top-up tax.

In principle, it is proposed that the transposition of Directive (EU) 2022/2523 be carried out through its own standard of legal rank, and it must be in force on December 31, 2023 for it to be applied to the tax periods that begin on or after that date, in practice in 2024, although the UTPR rule will apply for tax periods that begin on or after December 31, 2024, in practice on January 1, 2025 .

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IS – Transfer Pricing: The Tax Authorities Include Them In Their Annual Tax Control Objectives

On February 27th, was published in BOE the resolution of February 6th, 2023, which establishes the general guidelines of Tax and Customs Control Plan of 2023,  which includes the reinforcement of the 360º strategy on transfer pricing purposes.
Under this line of action, the Tax Administration will intensify management and control with the identification of tax risks that may affect transactions among related parties, as a result from the incorrect determination of transfer pricing policies in multinational groups.

Access the complete resolution HERE