On May 25, 2023, Law 13/2023 was published in the BOE. A new significant amendment has been approved whose purpose is to reduce the indebtedness ratio of the entities increasing the limitation on the tax deductibility of the financial expenses in the Spanish Corporate Tax. This measure will take effect in fiscal year 2024.
Since 2012, the Corporate Income Tax Law establishes, in general terms, a limitation to the deductibility of financial expenses of 30% of the operating profit (EBITDA) of the company, with a minimum of 1 million euros.
For the purposes of calculating the aforementioned EBITDA on which 30% is applied, the previous regulation entitled the entities to add to the operating result of the P&L account for the year, dividends from subsidiaries provided that they were entitled to exemption, so that the amount on which the limit is calculated was, in many cases, much higher if dividends were received from subsidiaries.
Due to this new amendment operated by Law 13/2023, for the purposes of determining the EBITDA on which the 30% limitation is calculated, income, expenses or income that had not been integrated into the tax base are excluded, that is, any exempt income (or non-deductible expense) prevents restricting or expanding the expense of financial expense. Therefore, the 30% limit can be significantly reduced with the consequent increase in the tax bill.
This measure will have a special impact on those companies that usually receive exempt income such as dividends or capital gains from other entities of the group but, in addition, bearing a high level of financial expenses derived from intragroup or third-party loans. The implications of this measure may be particularly significant for tax consolidation groups where deductibility must be analysed at Group level and where the minimum amount of €1 million applies to the entire group and not to each of its component companies.
Therefore, as advisors specialized in group tax consolidation, we recommend carrying out an analysis of the current financial structure and the exempt flows that are expected to be received in the upcoming years in order to mitigate the impact of this restriction as far as possible.
Factors to highlight of the restrictions on the limitation of financial expenses in the Income Tax:
- The current wording may raise doubts about the treatment applicable to the 5% of the amount of the dividend that is not effectively exempt from 2022. In this sense, we understand that it should be computed as part of EBITDA.
- Dividends that, despite being from the Group, do not meet the requirements to be exempt, should be integrated into EBITDA, thus increasing the amount of deductible financial expenses.
- Although it is not usually given as much importance as exempt income, it will also be necessary to study the effect of those expenses included in the operating result that have not been integrated into the tax base of the IS since they will also have an important effect on the aforementioned limit, in this case, we understand that extending it.
UHY Fay & Co recommends that those groups with a high level of indebtedness carry out an analysis of the effects that this measure will have in coming years.
