SPAIN Law and Practice Contributed by: Raúl Salas and Elena Ferrer-Sama, RocaJunyent
6.5 Controlled Foreign Corporation-Type Rules According to Spanish law, a foreign company is con - sidered a CFC when 50% or more of its equity, capital, profits or voting rights is controlled directly or indirect - ly by Spanish shareholders, and if the CIT paid by that company is less than 75% of the CIT that would have been paid in Spain. Under the Spanish CFC rules, the following income must be allocated to the Spanish company: • income obtained by foreign subsidiaries without material or personal resources (substance); or • passive income (eg, property, shares, insurance and loans) obtained by foreign subsidiaries. It should be noted that the CFC rules do not apply to companies or PEs resident in the EU or in a state that is part of the EEA Agreement if it can be proved that they carry out a business activity or are collective investment institutions (CIIs) regulated in EU Directive 2009/65/CE. With effect from 2021, the scope of the CFC rules applies to dividends and capital gains obtained by foreign holding companies that have held at least a 5% stake in foreign operating subsidiaries for more than one year. 6.6 The Substance of Non-Local Affiliates Although Spanish law does not contain any rules relating to the substance of non-local affiliates, the interpretative approach adopted by the Spanish tax authorities – following the OECD Guidelines and EU jurisprudence – is to require an examination of the economic substance. Consequently, in order to determine the application of the tax advantages envisaged in a specific DTA, not only is the identity of the formal owner of the income ascertained but so too is the identity of the person who actually receives the income from an economic perspective. This means analysing both the form and the substance of the transaction in order to determine whether the person applying for the DTA advantages is the beneficial owner of the income.
Accordingly, the criterion followed by the Spanish tax authorities requires that a structure in which a non- local affiliate is interposed be designed for commer - cial and economic purposes. Otherwise, the situa - tion should be regularised. This means that any tax advantage obtained should be eliminated and the DTA between Spain and the country of residence of the interposed non-local affiliate will no longer apply. 6.7 The Sale of Shares in Non-Local Affiliates Capital gains accrued by the Spanish entity on the sale of shares in non-resident subsidiaries could qualify for the 95% exemption envisaged in Article 21 of the CIT Law (see 6.3 Dividends From Foreign Subsidiaries ). Capital losses from shares that could benefit from the participation exemption are not tax-allowed unless they come from liquidation (with certain requirements). In order to enable the Spanish tax authorities to tackle situations in which a taxpayer artificially avoids the payment of taxes, the Spanish General Tax Law pro - vides the following General Anti-Avoidance Rules (GAAR): • the substance over form or requalification rule; • the rule for conflicts in the application of the law; and • the rules for simulated schemes. 7. Anti-Avoidance Provisions 7.1 Overarching Provisions According to the Anti-Tax Avoidance Directive (ATAD), EU member states must implement a GAAR. However, Spain already had such a rule, meaning that there was no need to introduce a new rule. Therefore, no modifi - cation was required. Additionally, Spanish legislation has numerous Specific Anti-Avoidance Rules (SAAR), of which the most frequently applied are: • the transfer pricing anti-avoidance rule; • the limitation of financial interest paid to group entities’ deductibility; • the anti-abuse rule for mergers, spin-offs and the exchange of shares; • the rule for preventing the transfer of companies with carry-forward tax losses; and
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