Financing costs in Spain are deductible, subject to new rules imposed with effect from 1 January 2012, which replaced its previous thin capitalisation rules.

Anti-avoidance rules

With effect from 1 January 2012, "net financial expenses" over €1 million which are in excess of 30% of a company’s "operating profit” are not deductible for Spanish corporation tax purposes.

For this purpose: (i) “net financial expenses" means the excess of financial expenses in respect of financial income and (ii) “operating profit” is a statutory term that essentially describes EBITDA.

“Net financial expenses” that cannot be deducted in a tax period may be deducted in the tax periods ending in the following 18 years, together with the “net financial expenses” of the relevant tax period and subject to the same limit.

In the event that “net financial expenses” of a tax period do not reach 30% of the “operating profit”, the difference may be accumulated and added to the limit applicable in the tax periods ending in the following 5 years.

In the case of entities that apply the tax consolidation regime, the 30% limit applies to the tax group. However, the “net financial expenses” of an entity have been incurred but not yet deducted at the time of its incorporation into the group, will be deductible up to the limit of 30% of its own “operating profit”.

Note that the limit on the deductibility of “net financial expenses” does not apply to credit entities (“entidades de crédito”).

Additionally, as from 1 January 2012, financial expenses derived from intra-group financing are not deductible, when such intra-group financing has been incurred for the purposes of acquiring from a group company a stake in the share capital of a third entity or for the purposes of making a capital contribution in a third entity (unless the transaction has valid commercial reasons).