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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