Spain’s Council Of Ministers Approves Draft Bill Transposing Directive On A 15% Global Minimum Tax – Income Tax

The OECD’s Pillar 2 is the source of the draft bill, which
resulted in the approval of Directive (EU) 2022/2523 on a 15%
global minimum tax, in December 2022. The directive is aimed at
curbing aggressive tax planning by multinational groups. It was
required to be incorporated into the national laws of European
Union Member States by the end of December 2023.

Despite significant challenges, Spain has met its obligation to
transpose the rule within the given timeframe. However, the
parliamentary process is expected to continue during 2024, the
first year in which the rule will have an impact.

This Insight focuses on specific aspects of the approved draft
bill (you can read more in our previous Insight on the workings and properties of Pillar 2).
However, it is worth mentioning that the wording of the bill is
very similar to that of the directive.

Legal form and territorial application

The transposition of the draft bill will take the form of a
regulation that will have an independent legal status to the
Corporate Income Tax Law, rather than as an amendment to it (as had
been initially expected).

For all groups with a turnover of at least €750 million
during two of the last four fiscal years, this rule will be
applicable throughout their Spanish territory. The draft bill
includes the same agreement clause with the special local regimes
as the Corporate Income Tax Law, indicating that Spain will pass
more laws regulating this new tax.

Approval of a top-up tax in Spain

The draft bill proposes the introduction of a top-up tax in
Spain. This is a recently created tax designed to guarantee a
minimum taxation rate of 15% on the income of low-taxed
entities.

The top-up tax has three components following the well-known
Global Anti-Base Erosion Model Rules (GloBE rules):

• The Domestic Top-up Tax, which will be computed and paid by the
  low-taxed constituent entities in Spain belonging to large national
  or international groups. The purpose of this tax is to collect at
  least 15% of the profits generated in Spanish territory.




• The Primary Top-up Tax, which is equivalent to the
  Directive’s Income Inclusion Rule (IIR). According to this
  rule, the parent entity computes and pays its allocable share of
  top-up tax in respect of the low-taxed entities of the group.
  Spanish entities, on the other hand, will be taxed under the
  domestic element.




• The Secondary Top-up Tax, which is equivalent to the Undertaxed
  Profit Rule (UTPR). This rule acts as a backstop to the IIR when
  the entire amount of top-up tax relating to low-taxed entities
  could not be collected by parent entities through the application
  of the IIR. If this happens, the liability for the top-up tax falls
  on the relevant subsidiary.

Safeharbours regulations

Both the draft bill and directive establish transitional relief
for the affected multinational groups in the initial years during
which the GloBE Rules come into effect, provided that the
transitional “safe harbours” requirements are met.

These transitional safe harbours seek to ameliorate the
immediate compliance difficulties that these groups will face at
the start of the implementation of the Top-up Tax in Spain by
deeming it zero in the jurisdictions fulfilling its conditions
until 2026.

Large-scale domestic groups in Spain and those that are just
beginning their international expansion are also exempt to comply
with the requirements and procedures mandated by Pillar 2 for the
first five reporting periods.

The draft bill suggests that an agreement will be reached on the
regulation of permanent safe harbours at an international level.
These permanent safe harbours can function in a way that is similar
to transitional safe harbours. However, the difference is that they
will be meant to be permanent or come as safelists of territories
that comply with Pillar 2 regulations and therefore demand a
minimum tax of 15% from their taxpayers.

Interpretation of the rules

To interpret the top-up tax legal framework, the draft bill
refers to the OECD Model Rules and the applicable criteria when the
tax accrues. These criteria are based on the Administrative
Comments and Guides issued by the OECD, which will now serve as the
new “external” source for interpreting the Spanish top-up
tax.

However, there are some challenges with this interpretation
reference. The OECD has done extensive work on its criteria, but
its efforts have been spread out in multiple documents and are
subject to constant change. Even the draft bill does not include
the criteria in the Administrative Guidance issued by the OECD in
July 2023. Therefore, it will be necessary to monitor international
soft law to remain up-to-date with the latest developments in this
matter.

The implementation of Pillar 2 and the imposition of extra taxes
on regions that do not meet the 15% minimum tax rate could have
financial consequences. But even more than financial consequences,
multinational groups affected by these changes will face a
significant challenge to ensure compliance with the new
regulations.

Osborne Clarke comment

The first step to be taken by the multinational groups affected
by Pillar 2 will be to calculate the impact of these measures on
their financial statements via accounting provision. The
administrative burden is expected to outweigh the revenue for the
top-up tax at a global level.

There are doubts raised as to the constitutional compatibility
of the draft bill in Spain. For example:

• Implementing Complementary Tax regulations may lead to certain
  entities paying additional taxes, even if they are loss-making,
  which could contradict the principle of economic capacity.




• Using the OECD Guidelines and criteria for interpretation
  without them being reviewed and approved by the Spanish legislature
  might potentially infringe upon the principle of the reservation of
  law.




• Specific domestic tax regimes recognised by the EU that offer
  certain incentives below the minimum rate of 15% may be affected if
  Spain is viewed as a single jurisdiction that must adhere to a
  top-up tax. For example, investment incentives that apply to the
  Canary Islands may be impacted as a result of this.

It is therefore crucial for businesses to keep a close eye on
the implementation of this directive and any other guidelines that
may affect its substance, originating from either the EU or the
OECD.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.