Updates Tax 2-2012

This royal decree-law introduces some very specific and important measures mainly affecting the corporate income tax of large companies and sets out certain rules on the repatriation of unreported income or of cash held in low- or zero-taxation territories. 

They are in line with earlier measures introduced by Royal Decree-Law 9/2011, which restricted the tax loss carryfowards large companies could offset; deferred the deduction of financial goodwill on acquisitions of companies in other countries; and pushed up the amount of corporate income tax prepayments. 

These earlier measures have now been expanded by extending the deferral to other deductible goodwill, such as the goodwill on acquisitions of BUSINESS or in certain merger transactions; by considerably curtailing the use of the tax benefit allowing unrestricted amortization or depreciation; by restricting the amount of borrowing costs that can be deducted; and by setting a minimum limit on corporate income tax prepayments, calculated on the basis of the profit recorded in the income statement.

The consequence, as a general rule, will be that the companies affected by these measures will see their tax bases rise considerably in the coming years, and it is on these tax bases that their corporate income tax liability will be calculated. The royal decree-law has also temporarily brought down the ceiling on gross tax payable to be able to take corporate income tax credits, including the tax credit for reinvestment of extraordinary income, which hitherto had no restrictions at all.

An immediate impact is expected on tax revenues, as these temporary measures will apply to this year’s first corporate income tax prepayment, due in the first twenty days of April 20, while the following ones are due in the first twenty days of October and of December 2012.

Another important headline is the creation of a special 8% reduced rate only for 2012, to be levied on dividends and foreign-source capital gains from territories with low or zero taxation, paid or arising until December 31, 2012, with the aim to attract income or profits generated abroad that had not been repatriated due to the high tax cost caused by distributing them in Spain.
 
In a step that takes further and implements the provision in criminal law that allows relief from criminal liability for voluntary disclosures made before the start of an audit or before an offence is reported or criminal complaint filed, it contains a voluntary tax disclosure mechanism allowing goods or rights not previously reported for personal income tax, corporate income tax and nonresident income tax purposes to be disclosed without any surcharges, interest or penalties.

Lastly, changes have also been made to the tax on tobacco products and the tax on increase in value of urban land which are not discussed in this Bulletin.

1. CORPORATE INCOME TAX
1.1 Borrowing costs. Restrictions on deduction
1.2 Unrestricted amortization and depreciation
1.3 Goodwill on business acquisitions or on mergers
1.4 Income from holdings in nonresident entities. Dividends and gains
1.5 Tax credits. Reduction in the ceiling on tax payable
1.6 Corporate income tax prepayments

2. VOLUNTARY DISCLOSURE OF UNREPORTED ASSETS – SPECIAL TAX RETURN