SPAIN Trends and Developments Contributed by: Raúl Salas, Elena Ferrer-Sama and Cristina Cavero, RocaJunyent
the group – as well as where the tax group abandons the consolidation tax regime. The main advantages of the Tax Group Regime are as follows. • Taxation of profits (resulting from operations between group entities) would be deferred. • Tax losses originated within the group, by any group company, could be fully offset with tax prof - its of any other company belonging to the group. Exceptionally, and only for tax year 2024 and 2025, a limit for this offsetting was established and current-year tax losses can only be offset by other group companies up to 50% of that tax loss. The remaining 50% can be freely offset in the follow - ing ten years. Carry-forward tax losses originated before joining the tax group can only be offset by the company that generated it. • Any tax incentives or tax credits generated within the tax group can be freely used by any company belonging to the group. Requirements, conditions and obligations resulting from the application of those tax incentives could be afforded or fulfilled by any entity belonging to the tax group. Tax incen - tives originated before joining the tax group could only be utilised by the single entity that originated them. • Dividends, interests or any payments between enti - ties of the same tax consolidation group are also exempt from the obligation to withhold tax. • Operations between related entities should be valued according to the arm’s length principle, and tax consolidation groups are not exempted from this obligation. However, entities belonging to a tax group are not obliged to prepare transfer pricing documentation in relation to intra-group opera - tions, which entails significant savings in terms of administrative and compliance costs. The application of the Tax Group Regime requires a decision by the board of directors, taken before the beginning of the year in which it will be applied. Capital Losses From Transfer of Shares Following the international trend, Spanish CIT rejects the tax deduction of capital losses when the participa - tion exemption would have been applicable had there
been a capital gain. However, the tax treatment would be far different in the case of a liquidation. Sale of Shares That Could Benefit From the Participation Exemption Capital gains resulting from selling shares of an entity when the selling company had at least a 5% interest for at least 12 months would be 95% exempt. In the case of a capital loss, the Spanish CIT provides that such loss shall not be deductible, regardless of the acquirer or the sale price; in other words, a capital loss from the sale to an independent party applying the arm’s length principle will result in a non-deducti - ble tax loss. This situation will not change even if both the selling and buyer entities are part of a tax group. A shareholder planning to transfer a portfolio might consider liquidation instead of a sale. Liquidating a Company According to the Spanish CIT, the process for liquidat - ing a company will have tax consequences for both the shareholder and the liquidated company. Liquidated company The liquidated company will transfer all its assets and liabilities to its shareholders, which would likely result in a tax loss. This tax loss cannot be utilised since the company will be extinguished. Shareholder company The difference between the value of the shares and the value of the assets received on account of the liquidation will generate a capital loss for shareholders that could be tax-deductible. In summary, in practice the only way to obtain tax allowance from a portfolio capital loss is through the liquidation of the company, which should be consid - ered as an alternative to the transfer of shares. Limits to the Application of Carry-Forward Tax Losses Like many other countries, Spain approved (after vari - ous crises since 2007) limitations on the offsetting of carry-forward tax losses (CFTL). However, in January 2024 the Spanish Constitutional Court concluded that the legislative instrument followed by the government
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