Spain

Spanish corporate law regulates inbound and outbound re-domiciliations and cross-border mergers. However, the tax treatment of a re-domiciliation or cross-border merger could be different depending on whether the jurisdiction on the other side is an EU Member State or eligible EEA State. As regards outbound movements, the tax treatment may also differ depending on whether, after the transfer of the assets or the re-domiciliation, a Spanish PE is retained.

The following Q&As cover the tax treatment first of re-domiciliations and then of cross-border mergers, in each case for inbound and outbound movements.

KEY CONTACTS

Guillermo Canalejo Lasarte
Partner
guillermo.canalejo@uria.com

David Vilches de Santos
Counsel
david.vilches@uria.com

Fernando Centellas García
Associate
fernando.centellas@uria.com

re-domiciliations

Inbound re-domiciliations

The re-domiciliation should not be subject to capital duty (either because it is outside the scope of such duty or because an exemption applies).

VAT, transfer tax or stamp duty may apply, for instance, if assets are physically moved to Spain.

According to the Spanish Corporate Income Tax Law, Spanish incorporated companies or companies having their place of effective management in Spain are prima facie Spanish tax resident, unless they fall to be treated as non-resident under an applicable double tax treaty.

So, unless the re-domiciling company had to be treated as resident in a different country under an applicable double tax treaty, it would automatically become Spanish tax resident when it changes its corporate seat.

If the re-domiciliation is from another EU Member State and the re-domiciling company was subject to an exit tax charge under the laws of that State, ATAD prescribes that the value of an asset as determined by the departure State for the purpose of the exit tax shall be considered the tax value in Spain, unless it does not reflect the asset’s true market value. Therefore, a tax step-up is possible if latent capital gains have been taxed by the EU Member State of departure.

It is not clear whether such a step-up could be applied when the departure State is not an EU Member State. However, there could be grounds to argue that, in order to avoid double taxation, where latent capital gains are taxed upon departure, the tax value of the transferred assets should be stepped up, regardless of whether the departure State is an EU Member State. In any case, this potential argument must be evidenced through tax assessments or other supporting documentation.

If the re-domiciliation falls within the scope of the Mobility Directive, it could, in our view, be argued that it should not restart holding periods for the assets (including shares) held by the re-domiciling company, although there are no clear guidelines on this.

Becoming Spanish tax resident following the re-domiciliation should have no adverse implications in Spain for CIT purposes. However, it should be noted that, according to Spanish regulations, the relocation of tax residence to Spain does not imply an alteration of the fiscal year that coincides with the tax period. Therefore, if the re-domiciliation occurs during the fiscal year, the company may be subject to CIT in Spain on all income earned during that fiscal year and not just on the income earned after the re-domiciliation. The position in the departure State and in Spain would need to be considered in the round to determine whether there is a risk of double-taxation of the profits accrued during such part of the period current at re-domiciliation as falls before the re-domiciliation (e.g. if the departure State takes the same position as Spain would on an outbound re-domiciliation – see answer to Question 9).

The re-domiciling company will have to prepare annual accounts for the re-domiciliation year in accordance with Spanish regulations. Consequently, depending on which valuation principles and standards the company previously followed, items may have to be revalued for accounting purposes in accordance with Spanish accounting criteria. The necessary adjustments will be made retroactively unless the result of the new valuation presents no significant changes in light of the true and fair view principle.

Outbound re-domiciliations

A re-domiciliation to an EU Member State is not subject to capital duty and is exempt from transfer tax and stamp duty.

If the destination State is not an EU Member State, technically speaking, Spanish tax law does not prohibit a stamp duty charge, but the Spanish Tax Authorities’ position is that re-domiciliations to a country outside the EU are not subject to transfer tax, stamp duty or capital duty.

So, a priori, neither VAT nor transfer tax nor stamp duty should be levied, but we cannot rule out that the Spanish Tax Authorities may take a different approach if it is considered that the circumstances demand this.

We would emphasise two assumptions. First, on a re-domiciliation, the company would normally cease to be Spanish tax resident and become tax resident in the re-domiciled country, so the following comments are made on this basis. Secondly, different considerations would apply, if, following the re-domiciliation, the re-domiciling company continued to have its place of effective management in Spain, and this situation is not discussed here.

Having determined the above, the CIT treatment of the re-domiciliation will depend on whether the re-domiciling company retains a PE in Spain. If no PE is maintained, latent capital gains in respect of the company’s assets may be subject to Spanish CIT. If the re-domiciliation is to an EU Member State or an eligible EEA State, the taxpayer may choose between paying the charge in full immediately or in five equal annual instalments. Where the taxpayer opts for instalment payments, remaining instalments may become due early if the taxpayer misses payment deadlines, if the assets are on-transferred to a third party or outside the EU/EEA or if the taxpayer ceases to be tax resident in the EU/EEA.

If the re-domiciling company retains a PE in Spain, latent capital gains of assets allocated to the PE will not be subject to Spanish CIT. These assets will follow the neutrality regime established for certain corporate reorganisations. In respect of assets not allocated to the Spanish PE, a Spanish CIT charge could apply as set out above.

No withholding obligations should arise.

According to Spanish tax laws, the re-domiciliation would trigger an early termination of the tax period. So, profits accrued during such part of the period current at re-domiciliation as falls before the re-domiciliation would be subject to Spanish CIT.

If the re-domiciling company retains a Spanish PE, then, as a matter of principle, Spanish branch tax may be applicable, subject to double tax treaties and the EU domestic exemption.

Cross-border mergers

INBOUND MERGERS

No transfer tax, stamp duty or capital duty should arise if the merger qualifies as a “restructuring transaction” under the Spanish tax neutrality regime. In order to qualify, certain conditions must be met, including a business purpose test. If the merger qualifies, it would not be subject to capital duty and would be subject to (but exempt from) transfer tax and stamp duty.

The sale of assets by a VAT-able person is generally treated as a taxable supply subject to VAT at the standard rate of 21% unless an exemption applies. Special rules for VAT purposes may apply for certain types of goods (e.g. real estate). However, the transfer of assets in the context of a merger could be considered a transfer of a going concern and therefore not subject to VAT. In that case, certain assets transferred in the context of the merger would be subject to transfer tax (although, as stated above, an exemption would be available if the merger is considered a “restructuring transaction” under the Spanish tax neutrality regime).

The Spanish CIT considers the tax neutrality regime to be the main regime applicable to mergers and acquisitions. Under this regime, the company would not have a step-up, but the company retains the possibility of not applying this regime and applying the general regime where the revaluation would be mandatory.

In any event, the Spanish Tax Authorities would not accept a step-up if no effective taxation occurs in the transferring company’s jurisdiction.

Generally, it is possible to partially waive the application of the tax neutrality regime in connection with specific assets and hence effective taxation would be levied therein and those assets could be stepped-up.

The application of the tax neutrality regime should, in principle, mean that holding periods are calculated from the date when the transferring company acquired the assets (rather than from the date of the merger).

The tax authorities are intensively challenging the business purpose motives that support the application of the tax neutrality regime (generally for restructuring transactions in Spain) when the transaction involves a tax advantage for the parties (e.g. the application of tax credits that would not have been used if the transactions had not been carried out). In that sense, our recommendation is to request a binding ruling from the Spanish Tax Authorities before the merger.

outbound mergers

See answer to Question 1.

If the merger is carried out within the EU, the tax neutrality regime may apply if the transferred assets are maintained within the Spanish tax jurisdiction, for instance, if they are allocated to a Spanish PE of the receiving company. In that case, the contributed assets will inherit the historical tax value of the assets and the holding period.

If the receiving company is located outside the EU, the tax neutrality regime would not apply and the embedded gains may be taxed (subject to applicable double tax treaties).

No withholding obligations should arise.

If the receiving company retains a Spanish PE, then, as a matter of principle, Spanish branch tax may be applicable, subject to double tax treaties and the EU domestic exemption.

Other points that should be considered include the potential impact of the merger on tax assets and liabilities (including deferred tax assets and deferred tax liabilities) and on tax consolidations. Notification obligations may also arise.

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This material is provided for general information only.
It does not constitute legal or other professional advice.