SPAIN Law and Practice Contributed by: Miguel Cases, Toni Barios, Joaquín Fabré and David Navarro, Cases & Lacambra
jurisdictions, withholding tax rates are, subject to dif- ferent conditions, reduced or even exempt. Interest paid to an EU resident or EEA resident (with a tax information exchange agreement with Spain, in the latter case) are exempt insofar as the provisions of the EU Interest and Royalties Directive are satisfied. 4.2 Other Taxes, Duties, Charges or Tax Considerations Financing agreements are generally exempt from val- ue added tax and not subject to transfer taxes. However, stamp duty tax is levied in transactions performed in a public deed, with economic valuable content, eligible to be registered in a public registry (ie, land registry, movable property registry or commercial registry) and not subject to transfer tax, capital duty or inheritance and gift tax. The applicable stamp duty tax rate depends on the autonomous region where the taxable event is triggered, generally ranging from 0.5% to 2%. The taxpayer is the borrower, except for mortgage loans where the taxpayer is the lender. Hence, taxes arising from the creation of in rem rights documented in a public deed that requires registration within a Spanish public registry can be relevant. For instance, a mortgage loan would trigger stamp duty tax for the amount secured by the mortgage (ie, principal, ordinary interest, default interest and costs) provided that the transaction is documented in a pub- lic deed. Deduction of interest expense is subject to limita- tions for corporations subject to Corporate Income Tax in Spain. In general, deduction is limited to 30% of operating profit (similar to EBITDA) of the year, with a safe harbour of EUR1 million. Undeducted finan- cial expense can be carry forward and thus deducted within the following five years subject to the same limitations. In addition, the corporate tax regulations envisage an anti-LBO tax provision, including an additional limi- tation for leveraged buy-out transactions restricting the tax deductibility of acquisition debt against the taxable profits of the acquired target entity through tax consolidation or a merger, unless certain condi-
tions are met (mainly, that the amount of the purchase price financed with debt does not exceed 70% of the total purchase price, and the borrower repays the debt principal every year within the eight years following the acquisition). Likewise, financial expenses incurred in the tax peri- od, arising from debts with group entities, regardless of residence, intended for the acquisition, from other group entities, of shares in the capital or equity of any type of entities, or for the making of contributions to the capital or equity of other group entities, are not deductible for corporate tax purposes unless the tax- payer proves that there are valid economic reasons for carrying out such operations. 4.3 Foreign Lenders or Non-Money Centre Bank Lenders Should the lender be an EU or EEA resident, inter- est payments are exempt insofar as the EU Interest and Royalties Directive provisions are satisfied. It should be noted that these provisions are subject to the “beneficial ownership test” and the relevant anti- abuse tax provisions of the EU Directive based on the criteria set by the European Court of Justice in its rulings C-115/16, C-118/16, C-119/16 and C-299/16 (ie, generally known as the “Danish cases”). If the lender is not an EU or EEA resident, interest payments are subject to a 19% withholding tax unless an applicable tax treaty, signed between Spain and the lender’s tax residence jurisdiction, reduces or exempts such 19% withholding tax. For the tax treaty benefits to apply, the following cumulative conditions must be met: • the relevant tax treaty has to be applicable by virtue of the aforementioned “beneficial ownership test”; and • the lender has to obtain in its jurisdiction of resi- dence, and provide the Spanish borrower with a tax certificate of residence within the meaning of the applicable tax treaty during the 12 months prior to the date when the relevant interest payment is due. Should interest payments be subject to taxation in Spain, the borrower will have the obligation to with-
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