The Spanish tax reform brought a new mechanism to reduce the tax burden of companies, independently of their size.
We refer to the capitalization reserve, a tax incentive that aims at maximising companies’ capitalization through their equity increase as well as the companies impairment cure and their competitiveness.
Prior to the closing of this fiscal year, it is highly recommendable to accurately know how it works.
✔ This incentive results in the non-taxation of the part of the profits, (10% of the equity increase and up to 10% of the taxable profits) allocated in a non-distributable reserve, with no investment requirement in any specific asset.
✔ It applies to companies subject to the general Corporate income tax rate or to the increased 30% rate for companies dedicated to the exploitation of hydrocarbons.
✔ What to take into account:
- Equity is the one defined by the Corporate income tax regulations, hence excluding certain of its ordinary accounting components such as the year’s result or the legal or statutory reserves, whose allocation is mandatory according to Law and that should not be beneficiaries of any tax relief.
- The increase of the company’s equity must be maintained during the period of five fiscal years as from the closing of the fiscal year to which this reduction relates.
- The taxable base that works as a limit of the reduction (at this latter cannot exceed 10% of the former) is a specific concept for the purposes of this incentive. It consists of the taxable base previous to the reduction itself, the reversal of certain impairments that generated deferred tax assets or the offset of pending tax losses carried forward.
- It is mandatory to allocate a reserve for the amount of the reduction. This reserve must be kept during five years.
✔ Although fiscal year 2015 is about to finish in a few days, a new discussion has recently started as to at which moment does the reserve allocation needs to be done: in fiscal year 2015, in which the equity increase giving rise to this reserve takes place against the previous year’s results; or, in the subsequent fiscal year to the one the equity increase takes place?
✔ It goes without saying that we are in favour of any tax relief that helps reduce Spanish Corporation tax for Spanish companies, despite the practical difficulties we may face in their application.