SPAIN Law and Practice Contributed by: Ángel Pérez López, Luis Jiménez and Rodrigo del Saz, Uría Menéndez
not deductible as this interest is considered a payment from the equity. Furthermore, financial expenses deriving from hybrid mismatches (eg, generating a double deduction or a deduction without inclusion in specific cases, pursuant to Council Direc- tive (EU) 2017/952 and Council Directive (EU) 2016/1164, and as implemented in Article 15 bis of the Spanish corporate income tax law), either with related parties or incurred upon a structured arrangement, are not deductible either. Lastly, the Spanish tax authorities have scruti- nised and challenged the deductibility of finan- cial expenses incurred upon specific financing transactions, such as dividend recaps or lever- aged treasury-stock acquisitions, taking the view that, inter alia, the financial expenses incurred do not benefit the debtor but its shareholders. While a case-by-case analysis must be carried out (in order to confirm the business rationale of each financing), Spanish courts have normally ruled in favour of the CIT-deductibility of the financial expenses incurred upon this sort of indebted- ness. Interest Barrier Rule – Earning Stripping Rule Under the earning stripping rule, net financing expenses exceeding 30% of EBITDA of a given tax year will not be deductible (unless the entity is, eg, a credit entity or in the year in which the debtor is extinguished, unless such extinguish- ment is carried out in the context of a restructur- ing). Financing expenses exceeding the ceiling can be carried forward and deducted in future tax periods. Net financing expenses not exceed- ing EUR1 million will be tax deductible in all cases. To determine the 30% EBITDA threshold, income or expenses that are not included in the CIT-taxable base are disregarded.
Spanish law also establishes further limits on the tax deductibility of interest arising from LBOs. In particular, the tax deductibility of interest paid in connection with a debt incurred to acquire shares in a company is limited to 30% of the acquiring company’s EBITDA, disregarding the EBITDA corresponding to any company that merges with the acquiring company or that joins the same tax group as the acquiring company within the four-year period following the acqui- sition. This limit does not apply if at least 30% of the acquisition is financed with equity (ie, the financing does not exceed 70% of the purchase price of the interest in the company), and the debt incurred to that end is reduced every year by at least the proportion required to reduce the debt to 30% of the acquisition price in eight years, until that level of debt is reached. As a result of COVID-19, Spain introduced a foreign investment control mechanism ini- tially intended to be temporary, but which was reformed and made permanent in 2023. The regime requires prior authorisation through both EU-law-based general FDI screening and sector-specific screening. In that sense, Targets which operate in specific regulated sectors that may affect Spain’s national economy (eg, activi- ties directly related to Spanish National Defence, critical infrastructure, key technologies, banking, insurance, energy, weaponry, media and health- care) may trigger special supervision rules and licensing requirements. 9. Takeover Finance 9.1 Regulated Targets The main impact on the transaction is that it would have to be structured and documented in such a way that all mandatory authorisations
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