Before the current Corporate Income Tax Law (Law 27/2014), Spanish legislation only allowed consolidation where the parent company was Spanish and this parent company’s interest in the controlled companies (also Spanish) was owned directly or through other Spanish companies. In other words, neither horizontal consolidation (“among sister companies”) nor indirect consolidation were allowed.

In different judgments, the European court (CJEU) has concluded that the consolidated tax group regimes in France (Judgment of November 27, 2008 in case C-418/07), the Netherlands (Judgment of June 12, 2014 in joined cases C-39/13 and C-41-13) and the United Kingdom (Judgment of April 1, 2014 in case C-80/12) were contrary to EU law due to not allowing this type of consolidation.

In view of the Spanish regime’s similarity to the ones in those states, the current Corporate Income Tax Law now allows those types of consolidation (horizontal and indirect) for fiscal years that began on or after January 1, 2015. What happens then for earlier periods when companies could not be consolidated under a correct set of rules?

In a decision rendered on March 8, 2018, TEAC (the Central Economic-Administrative Tribunal) acknowledged that “horizontal consolidation” was already applicable under the previous legislation (before being expressly implemented in the new Corporate Income Tax Law, in other words) as a result of the CJEU’s judgment rendered on June 12, 2014 in the Netherlands case. So, although TEAC acknowledged that its powers did not include the authority to conclude as to whether or not a given Spanish provision was precluded by EU law, the principles of primacy and direct effect of EU law made it obligatory not to ignore the CJEU’s case law for a case similar to that of Spain.

The Supreme Court has now reiterated this conclusion in a judgment rendered on June 11, 2018, also referring to the judgment in the Netherlands case. It has closed the door, however, on applying for refunds in relation to statute-barred periods (as a result of the financial liability of the government) because there is no specific decision by the CJEU on Spanish law, despite the similarity between the repealed Spanish regime and the Netherlands regime on which the CJEU’s judgment was delivered.