Spain Enacts its Global Minimum Tax Law

Legislation

On December 4, 2024, Spain issued a draft decree which includes Regulations for the application of the Global Minimum Tax Law. This was subject to a public consultation.

On December 21, 2024, Spain published Law 7/2024 (‘the Law’) in its Official Gazette to transpose the EU Minimum Tax Directive into domestic law.

The Law includes an Income Inclusion Rule (IIR) and a domestic minimum tax (intended to be a Qualified Domestic Minimum Top-Up Tax) from December 31, 2023 and an Under-Taxed Profits Rule (UTPR) from December 31, 2024.

Spain’s approach is to implement the global minimum tax provisions as a separate tax law.

General

As expected, the Law closely follows the EU Minimum Tax Directive. There are very few options given to member states in the EU Directive in terms of flexibility over national implementation. As provided in the EU Minimum Tax Directive, the GloBE rules also apply to wholly domestic groups.

Whilst the Law is to implement the EU Minimum Tax Directive into domestic Law, it does not reflect most aspects of the OECD Administrative Guidance (either the February 2023, July 2023, December 2023 or June 2024 guidance issued). The December 2024 Draft Regulations, do, however, propose to include a number of these provisions.

The Transitional CbCR Safe Harbour, Transitional UTPR Safe Harbour and the QDMTT Safe Harbour are specifically included in the Law. It also refers to other safe harbours as agreed at the international level.

OECD Administrative Guidance

The Spanish Law does not include many aspects of the First or Fourth Set of OECD Administrative Guidance. Additionally, none of the Second Set of OECD Administrative Guidance (issued in July 2023) or the Third Set of OECD Administrative Guidance (issued in December 2023) are included (aside from Safe Harbours), however, they are included in the December 2024 Draft Regulations.

The only aspects of the First Set of OECD Administrative Guidance included in the Law are:

-Sovereign wealth funds and the definition of Ultimate Parent Entity (Article 1.4);

-Excess negative tax carry-forward guidance (Article 2.7);

-Application of Article 7.6 to Insurance Investment Entities (Article 3.1); 

-Exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 3.2);

-Portfolio shareholdings election (Article 3.5);

-Deferred tax transitional rules (Articles 4.1-4.3).

Aspects of the Fourth Set of OECD Administrative Guidance included in the Law are:

-Extension of taxes pushed down to include Reverse Hybrids (Article 5.6.2)

-Option to not impose top-up tax liabilities on SPVs used in securitization transactions (Article 6.1.4)

The December 2024 Draft Regulation includes:

-Meaning of “ancillary” for Non-Profit Organisations (Article 1.6);

-Forex hedge election (Article 2.2)

-Excluded dividends – asymmetric treatment of dividends and distributions (Article 2.3)

-Debt release election (Article 2.4)

-Equity gain or loss inclusion election (Article 2.9)

-The extension of Additional Capital to include Restricted Tier One Capital (Article 3.3)

-Liabilities related to Excluded Dividends and Excluded Equity Gain or Loss from securities held on behalf of policyholders (Article 3.4)

-Application of Tax transparency election to Mutual insurance companies (Article 3.6)

-Tax Credits Guidance (MTTCs) (Article 2 Second Set of OECD Administrative Guidance)

-SBIE Rules:

o Foreign rules (Article 3 Second Set of OECD Administrative Guidance)
o Stock-based compensation election
o Leases (Article 3 Second Set of OECD Administrative Guidance)

-Mismatch between fiscal years of the UPE and another constituent entity (Article 3.1 of the Third Set OECD Administrative Guidance)

-Mismatch between fiscal year and tax year of a constituent entity (Article 3.2 of the Third Set OECD Administrative Guidance)

Safe Harbour and Penalty Relief Guidance

The Fourth Transitional Provision of the Law includes the Transitional CbCR Safe Harbour based on the OECD provisions outlined in its Safe Harbours and Penalty Relief Guidance. The changes provided in the December 2023 OECD Administrative Guidance (eg for hybrid arbitrage arrangements) are not included.

The Sixth Transitory Provision provides for the Transitional UTPR Safe Harbour.

Article 34(2) of the Law provides for the QDMTT Safe Harbour. In particular, it states that where a constituent entity is subject to a QDMTT in a foreign jurisdiction, the top-up tax in Spain will be deemed to be zero where the foreign QDMTT meets the conditions of a qualifying international agreement on safe harbours.

A “qualifying international safe harbour agreement” is defined as an international set of rules and conditions that all jurisdictions have accepted and that ensures that groups within the scope of the OECD Model Rules are able to elect to benefit from one or more safe harbours for a jurisdiction. This should therefore ensure that jurisdictions qualifying under the OECD Peer Review process for the QDMTT Safe Harbour will allow Spanish groups to qualify.

In addition, Article 34(3) of the Law seeks to include any future safe harbours announced by the OECD by deeming the top-up tax to be zero when constituent entities meet the conditions of a “qualifying international safe harbour agreement”.

Domestic Minimum Tax

Chapter III of the Law provides that Spain will apply a domestic minimum top-up tax (intended to be a QDMTT) for financial years beginning on or after December 31, 2023.

The Law provides that the standard GloBE calculation rules apply for determining the top-up tax. As such it refers to the general GloBE calculation in Article 24 for the determination of adjusted taxes and allowable net profits (to determine the QDMTT ETR).

This also ensures that the special rules of chapters 9 and 10 on corporate restructuring, holding structures, and for investment entities also apply for the application of the QDMTT.

There are two key amendments to the standard GloBE rules in the QDMTT calculation. The first relates to the accounting standard used.

Under Section 25(2) of the Law, the default position is that the general GloBE rules apply and the accounting standard of the UPE used to prepare the consolidated financial statements is used. However, when it is not reasonably possible to use this, Spanish GAAP can be used. Permanent differences in excess of EUR 1 million must be must be conformed to the UPE Accounting Standard.

This does not apply if the accounting period of the constituent entity differs from the accounting period of the UPE in the consolidated financial statements.

Note that the Law does not include currency provisions from the July 2023 OECD Administrative Guidance.

Secondly, Section 25(3) of the Law reflects the OECD Administrative Guidance which restricts the push-down of taxes to CFCs, PEs, hybrid entities and for taxes on distributions (aside from Spanish withholding tax on distributions).

The June 2024 OECD Administrative Guidance provides various options to jurisdictions that have implemented a QDMTT in respect of securitisation vehicles:

(i) application of the jurisdiction’s QDMTT to securitisation vehicles without any specific adjustment of the rules;

(ii) exclusion of securitisation vehicles from the scope of the QDMTT; or

(iii) inclusion of securitisation vehicles in the scope of the QDMTT while providing that the amount of QDMTT that has been determined for a securitisation vehicle is imposed on another Constituent Entity located in the same jurisdiction and forming part of the same MNE Group.

Article 25(4) of the Law applies option (iii). However, if there are no other constituent entities located in Spain, the amount of QDMTT for a securitisation vehicle is allocated for the purposes of the payment of the QDMTT to the securitisation vehicle itself.

The Third Transitional provision in the Law applies the international activity exemption for QDMTT purposes.