Following a recent tax reform, civil law partnerships ("CLPs") will no longer be transparent for tax purposes but will be subject to income tax provided they have both legal personality and a commercial purpose.

In former fiscal years, any entity with legal personality was subject to Income Tax except for CLPs, whose income and gains were directly attributed to their partners and taxed in their hands.

As from 1 January 2016, all CLPs are subject to Income Tax except those with no commercial purposes which remain as flow-through entities. In this regard, on 29 December 2015 the Spanish tax authorities issued an internal instruction to clarify that a CLP is subject to Income Tax only if it has both legal personality and a commercial purpose.

A CLP acquires legal personality where its articles of association are not kept in secret. The Spanish tax authorities understand that a CLP is deemed to have legal personality if either it is incorporated in a public deed or a CLP formalised in private document applies for a Tax Identity Number.

The Spanish tax authorities consider that all CLPs have a commercial purpose except those engaged in agricultural, farming, forest, mining and professional activities.

Notwithstanding this view, the General Directorate for Tax Purposes ("DGT"), the administrative body which has capacity to issue binding rulings, ruled on 30 July 2015 that a CLP engaged in financial investment with no human or material resources supporting the activity does not have a commercial purpose so it is not an entity subject to Income Tax but a flow-through entity.

Finally, there is a three-part temporary regime regulated in the Spanish CIT and PIT Laws, that deal with the tax consequences of (i) the dissolution and liquidation of a CLP potentially subject to corporate taxation, (ii) the conversion of the CLP into a Limited Liability Company (SRL) as well as a temporary regime for CLPs that wish to comply with the new rules.