SPAIN Law and Practice Contributed by: Ángel Pérez López, Luis Jiménez and Rodrigo del Saz, Uría Menéndez
lishment located outside the EU (or EEA, as indicated); or • an entity resident in a jurisdiction that has entered into a double taxation treaty with Spain that contains an exemption for interest payments and is fully entitled to benefit from that treaty. It should be noted that, for these purposes, EU/ EEA residents and treaty lenders must (i) not operate a business in Spain through a perma- nent establishment with which that lender is effectively connected, and (ii) obtain a valid and in-force certificate of tax residency in their spe- cific country of residence (within the meaning of the tax treaty, if applicable). The certificate should be provided in a timely manner to the borrower before any payment of interest is due or made (whichever occurs first). Therefore, although there is no legal definition of the term, these categories of lenders are usu- ally referred to as qualifying lenders. Beneficial owner status (including in the case of the EU/ EEA lender exemption) must also be carefully reviewed in light of the ECJ decisions of 26 February 2019 (in cases C-115/16, C-118/16, C-119/16 and C-299/16, N Luxembourg I and Others, and joined cases C-116/16 and C-117/16, T Danmark and Y Danmark) and the resolutions subsequently issued by the Spanish High Tax Court and, recently, in 2024, by the Spanish National Court. 8.3 Thin-Capitalisation Rules Since 2012, Spanish law has had no thin-capi- talisation rules or restrictions on debt financing, as these rules were substituted by the interest deduction barrier rules set out below. However, it is advisable to apply an arm’s length thin-cap ratio for the financing of Spanish companies by related parties, which must be analysed on a
case-by-case basis (as the former 1:3 equity- to-debt ratio is no longer a safe harbour). The deductibility of financial expenses is subject to the following limits under Spanish tax law. Potentially Abusive Financing Schemes Spanish law excludes the deductibility of finan- cial expenses that arise from debts contracted with other entities that belong to the same com- mercial group – within the meaning of Article 42 of the Spanish Commercial Code and regard- less of the residence of the companies and the obligation to formulate consolidated financial statements – when such debts are intended to finance (i) the acquisition of shares of any type of entities from another entity in the group or (ii) a contribution (or increase) to the share capital or equity of other entities in the group; unless it is proved (both in (i) and (ii)) that there are valid and sound economic and business reasons for such transactions. The corresponding regulations do not define “sound business reasons” for these purposes, but the preamble to the law introducing this limi- tation states that a group restructuring that is the direct consequence of an acquisition from third parties (which could include specific debt push-downs) or situations in which the acquired companies are actually managed from Spain can be deemed reasonable from an economic per- spective. In addition to this limitation, Spanish law pro- vides that, in the event that the lender and bor - rower are part of the same commercial group – within the meaning of Article 42 of the Span- ish Commercial Code and regardless of the residence of the companies and the obligation to formulate consolidated financial statements – interests generated by profit-sharing loans are
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