The Council of Ministers has approved Royal Decree-law 3/2016, of 2 December, that introduces different measures in order to comply with the objectives established by the European Union in the Council Recommendation of 21 June 2013 and mitigate the negative effects of an excessive government deficit in the Spanish Economy. These are the most important measures approved for Corporate Income Tax (CIT) payers:

Limits on the offsetting of Tax Losses

Once again, the limit on the offsetting of Tax Losses is modified. For fiscal years starting on or after 1 January 2016, Tax Losses of previous years can be offset up to the 60% (70% for fiscal year 2017 onwards) of the taxable base, except for "Large Enterprises" (CIT payers with an annual net turnover of the previous 12 months to the beginning of their fiscal year of €20 million or higher).

The applicable limits for Large Enterprises are the following:

  • Large Enterprises with an annual net turnover of the previous 12 months to the beginning of their fiscal year between €20 million and €60 million, 50%
  • Large Enterprises with an annual net turnover of the previous 12 months to the beginning of their fiscal year of €60 million or higher, 25%

Please, note that the €1 million annual threshold has not been modified.

Limits on the application of Double Tax Credits

Additionally, for fiscal years starting on or after 1 January 2016, Large Enterprises will be allowed to deduct their pending Double Tax Credits up to the 50% of their tax liability.

Reversion mechanism of equity impairment losses

Also for fiscal years starting on or after 1 January 2016, equity impairment losses that were deducted from the taxable base in fiscal years previous to 2013 (when equity impairments were still tax deductible), must be annually reversed on a straight line basis over a five-year period.

Losses arising on the transfer of participations and permanent establishments

Following the legislative proposals made by the European Union and in line with participation exemption regimes of surrounding countries, starting from 1 January 2017, losses arising on transfers of participations whose capital gains and dividends qualify for the participation exemption regime, will no longer be deductible for CIT purposes, while the rest of the regime has been left untouched. The same treatment has been approved for permanent establishments outside Spain, whose losses arising on their transfers will not be tax deductible from fiscal year 2017 onwards.

Losses arising from participations on entities resident in tax havens or low-tax jurisdictions

Also starting from 1 January 2017, all kind of losses generated by participations held on entities resident in tax havens or low-tax jurisdictions must be excluded from the taxable base.