• 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 its acronym in English) through 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 modified the regulations governing Corporate Tax, with the objective of establishing the independence of certain DTAs (specifically those derived from provisions not taxed and those derived from contributions to social security systems) of the evolution of the entity to provide for the conversion of these assets into receivables from the public treasury in cases of losses, judicially declared insolvency and liquidation.

In the specific case of credit institutions, this rule 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 entities. In this way, the norm facilitates that these can continue contributing to the economic recovery facilitating the credit to companies and families.

The Ministries of Economy and Competitiveness and Finance 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 about the compatibility of 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 proposal to modify the Corporate Tax Law, which has been positively assessed by the European Commission, will consist of the following:

  1. DTAs generated before January 1, 2016, that were covered by the guarantee included in RDL 14/2013 will keep it in the future. However, if the beneficiaries of the guarantee had paid less taxes 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. As of 2016, only those DTAs that meet the same requirements as in the 2013 rule but with a limit that depends on the Corporation Tax paid will be guaranteed. That is to say, no guaranteeable DTA may be generated when there is no payment for said Tax.

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