12 February, 2014

Tax Consolidation as an Effective Optimization Tool in Spanish Corporation Tax

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The use of tax losses is a stand-alone right that corresponds to the entity that has generated them.

Despite this general rule and given the changing scenario in the possibility to achieve a double dip through the provision for the depreciation of portfolio, tax consolidation scheme appears as an effective optimization tool to reduce the overall Spanish group tax burden.

Up to Jan. 01, 2013, the portfolio depreciation provision allowed the tax recognition of the loss in the parent company, subject to certain requirements. This possibility as been eliminated from the tax regulations, effectively as of the mentioned date, since portfolio depreciation is no longer tax deductible.

In this new scenario, companies must look for the most optimal way to take profit of the use of a tax loss of a company within a group by the rest of the group entities. One of the routes to achieve such a purpose is the use of a tax consolidation scheme.

Under such scheme, stand-alone tax losses generated in a given year, while tax consolidation is in force, can be offset against the profits of the rest of the tax consolidation group. It is required that the parent Group company holds, directly or indirectly, a minimum 75% in the rest of the non-quoted companies forming the Group, that is regarded as a sole taxpayer.

Several formalities and requirements must be complied with, hence, it is recommendable to seek for appropriate and reliable tax advice from an expert.

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