• The reform will eliminate any uncertainty about the compatibility of this instrument with Community legislation
  • The European Commission, the Ministries of Finance and Economy and the Bank of Spain have collaborated in the design

The Government has decided to modify the tax treatment of Deferred Tax Assets (or defferred tax assets, DTA by means of a reform of the Corporation Tax. The modification will be processed as an amendment to the General State Budget Law for 2016 and has been the result of collaboration between all the institutions involved: the European Commission, the Ministries of Finance and Public Administrations, and of Economy and Competitiveness, and the Bank of Spain.

Royal Decree-Law 14/2013 amended the regulations for Corporation Tax, with the aim of establishing the independence of certain DTAs (specifically those derived from provisions not computed for tax purposes and those derived from contributions to social security systems) of the evolution of the entity by providing for the conversion of these assets into receivables against the Public Treasury in cases of loss, judicially declared insolvency and liquidation.

In the specific case of credit institutions, this standard strengthens its solvency by preventing the tax regime from creating distortions – which do not exist in other jurisdictions – in the calculation of the regulatory capital of financial institutions. In this way, the regulation makes it easier for them to continue contributing to the economic recovery by facilitating credit for companies and families.

The Ministries of Economy and Competitiveness and the Treasury and Public Administrations and the Bank of Spain entered into a dialogue with the European Commission that has resulted in a legislative reform aimed at eliminating any uncertainty regarding the compatibility of the tax treatment of deferred tax assets in Spain with community legislation. This change also ensures the stability of the calculation of regulatory capital that Spanish financial institutions currently maintain.

The proposed amendment to the Corporate Tax Law, which has been positively valued by the European Commission, will consist of the following:

  1. DTAs generated before January 1, 2016, that were covered by the guarantee contained in RDL 14/2013 will maintain it in the future. However, if the beneficiaries of the guarantee had paid less tax between 2008 and 2015 than the value of these guaranteed DTAs, they must pay an annual capital benefit in favor of the State of 1.5% of the difference between the two amounts.
  2. Starting in 2016, only those DTAs that meet the same requirements as in the 2013 rule will be guaranteed, but with a limit that depends on the Corporation Tax paid. That is, no guaranteed DTA can be generated when there is no payment for the aforementioned Tax.

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