Spain Increases Advance Tax Payments for Large Companies

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By Brett Allan King

Oct. 3 — Some 9,000 large companies will pay more up front in estimated taxes as part of an advance tax payment regime implemented by Spain's acting government to help meet EU public debt reduction goals.

The government didn't list companies by name but, as of Sept. 30, Royal Decree-Law 2/2016 essentially requires corporations like Telefonica SA, Inditex SA, the Santander Group and all others with at least 10 million euros ($11.2 million) in annual sales to help the government raise an additional 8.3 billion euros to help meet its usual corporate tax revenue collection target of 20 billion euros.

The new regime will require companies to make advance tax payments on reported profits, which may or may not coincide with actual taxable income, in the interest of advancing revenue to the state.

The law generally would apply a minimum 23 percent rate on reported profits to large multinationals like Coca-Cola Co., Dow Chemical Iberica, General Electric Co., Pfizer Inc., Microsoft Iberica, Johnson & Johnson SA—to name a few. A minimum 25 percent rate would apply to credit entities such as Banco Bilbao Vizcaya Argentaria SA and oil exploration companies such as Repsol SA.

Payments deadlines are Oct. 20 and Dec. 20.

Higher Advance Payments

While Acting Treasury Minister Cristobal Montoro said the decree was a return to a fractional payment system in place from 2012-15, the new regime could require more companies to pay more in advance by practically doubling the 12 percent rate previously applied only to the taxable income of companies with more than 20 million euros in sales.

“Companies didn’t foresee this payment, and in some cases will not even have the liquidity necessary to effectuate it given a very short deadline of 20 days,” Bernardo Soto, the Confederation of Employers and Industries of Spain (CEOE)'s taxation department director and taxation committee secretary, told Bloomberg BNA Oct. 3.

Soto said companies aren't pleased with the changes partly because they come just as the tax year is coming to an end, and haven’t had time to prepare for new rules retroactive for the entire 2016 tax year.

Moreover, the discrepancy between fractional payments on reported profits could be problematic when taxable income is less than reported profits. “For example, when a company receives dividends from foreign affiliates and that income has already been taxed abroad in accordance with corporate tax law,” an important discrepancy between reported profits and taxable income could still be subjected unfairly to the fractional payment scheme, Soto told Bloomberg BNA.

Montoro said this modification to the company tax will apply for as long as Spain needs it to reduce its public deficit to below 3 percent of gross domestic product, as required by the European Union.

“This isn’t about keeping it for much longer, but we’ve got to comply and we’ve got to look at the horizon of 2018,” for meeting the deficit target, said Montoro.

Thirty Days for Approval

In the face of an unprecedented political stalemate that has left Spain without a government for all of 2016, the acting executive has used the decree-law normally reserved for emergency situations under the condition that parliament ultimately approves the final law within 30 days.

While the Popular Party’s former absolute parliamentary majority guaranteed eventual parliamentary approval, ultimate approval will ultimately depend on a fractured multipartite balance of power currently incapable of mustering the majority necessary for approving a new prime minister.

In the event that parliament doesn’t approve the terms of the law, Soto said it is conceivable that companies could try to request a refund of the fractional amount paid during the month the decree-law was in force.

“I imagine that they’ll approve it, because if they don’t we’ll end up with a fine from Brussels,” Rebeca Rodriguez, a partner at the law firm Cuatrecasas, Goncalves Pereira in Madrid told Bloomberg BNA Oct. 3. She said political parties are unlikely to oppose a measure that benefitted the state treasury.

The acting government in July already announced it would alter the corporate tax to cut the public deficit after the EU's Economic and Financial Affairs Council (ECOFIN) announced plans to fine Spain for failing to take effective action to keep its government deficits under the EU's reference value of 3 percent of GDP.

Given that parliament has 30 days to approve the law, this could be the last thing it does before dissolving parliament and calling a third round of elections, Rodriguez said.

To contact the reporter on this story: Brett Allan King in Madrid at

To contact the editor on this story: Rita McWilliams at

For More Information

Royal Decree-Law 2/2016 is available, in Spanish, at

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