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Spain Announces New Earnings Strippings Rules - by Alex Feness, Penny Woolford, Liz Murphy and Marc Desrosiers 

Global Tax Adviser


April 10, 2012


Alex Feness, Penny Woolford and Liz Murphy
Toronto, International Corporate Tax


Marc Desrosiers
Montreal, International Corporate Tax Service Line Leader


Spain has enacted new legislation that restricts interest deductibility for Spanish corporations, effective April 1, 2012. Among other changes, the legislation includes a new earnings-stripping rule that restricts interest deductions to 30% of earnings before interest, taxes, depreciation and amortization (EBITDA). This article summarizes the highlights of the new legislation.

Financing expense restrictions
Spain's new legislation restricts the amount of financing expenses (e.g., interest) that a corporation may deduct for tax purposes by:


  • Replacing the existing thin capitalization rule with an earnings-stripping rule that limits the deduction of net financial expenses to 30% of "adjusted operating profits" (although a minimum annual deduction of €1 million will be allowed)
  • Limiting deductions on intra-group debt used in the purchase or contribution of capital or equity of related entities, unless valid business reasons exist (e.g., restructuring after an acquisition from a third party).


Other measures
The new legislation also:


  • Reduces the amortization rate for goodwill to 1% (from 5%)
  • Reduces the free depreciation rates for certain assets (including the elimination of free depreciation for assets acquired after March 31, 2012)
  • Introduces a minimum corporate income tax
  • Limits the use of tax credits.


For more information, contact your KPMG adviser.

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