Spain: New Anti Tax Fraud Law published

1) Exit Tax amendments.

In respect to the previous Spanish exit tax rules, it was possible to defer the exit taxation, without any time limit, until the assets were transferred, provided that the migration took place in another EU Member State. The new rules introduce the obligation to integrate the difference between the market value and tax value of assets and liabilities in the taxable base, with a maximum five-year deferral in equal annual installments with the full tax debt becoming payable in certain cases (i.e. transfer of the assets to a third party or to a third country, etc.)

2) New Controlled Foreign Company (“CFC”) rules

Spanish Corporate Income Tax (“CIT”) Law already provides a CFC regime while the Law 11/2021 introduces several amendments as of 1 January 2021, as required by the EU Council Directive

Scope of CFC rules extended to permanent establishments (“PEs”). Permanent establishments outside Spain will now fall within the scope of Spanish CFC rules, and Spanish companies shall therefore include passive income obtained by its PEs (without possibility to apply the participation exemption available to income from PEs) when the PE obtains “passive income” and is subject to tax in its jurisdiction at a rate lower than 75% of the Spanish CIT, which would have corresponded to this income.

Dividends and capital gains obtained by foreign holding companies are now subject to the “passive income” imputation rules. Law 11/2021 cancels the safe-harbor rule applicable to holding companies, whereby companies holding more than 5% participation in foreign subsidiaries for more than one year were not subject to CFC rules if they had human and material means to manage the participation and did not qualify as companies “merely holding assets”. Therefore, foreign holding companies obtaining dividends and capital gains arising from the transfer of shares may – under the new regulation – fall within the scope of the CFC rules if all other relevant requirements are met. This amendment must be also associated with the amended Spanish participation exemption regime which limits to 95% the amount of exempt income, resulting in a positive effective tax higher than 0% (to be compared with the effective tax rate of the foreign holding subsidiary).

New categories of “passive income”. Law 11/2021 also provides new sources of CFC income such as sales and services conducted with a related party, in case the foreign entity adds little or no economic value, as well as insurance or leasing financial activities with a related party if they constitute a deductible expense.

Escape clause from CFC rules is relaxed. Until now, Spanish CFC rules do not apply when a foreign company is tax resident in another EU Member State and the taxpayer gives evidence that this EU company has been set up for good business reasons and carries out a business activity. Law 11/2021 extends the scope of this escape clause to PEs located in other EU Member States and to entities/PEs of the European Economic Area (EEA). The taxpayer shall only give evidence that the foreign company/PE carries out a business activity (i.e. “good business reasons” requirement is no longer requires).

3) VAT Grouping

Law 11/2021 clarifies that the parent entity of the VAT Group will be responsible for the payment of the VAT group’s debt and for the correctness of compensations and refunds claimed by the VAT Group as well as other VAT Group’s formal obligations.

4) “Tax havens” concept replaced by “non-cooperative jurisdictions”.

Law 11/2021 provides that references included in Spanish tax legislation to “tax haven” jurisdictions shall now be deemed replaced by the concept of “non-cooperative jurisdictions”, including territories known for their lack of transparency, absence of regulation, attraction of profits without real economic activity or the existence of low or null taxation