Global Tax Alert: Spanish Government publishes 2022 draft Budget Act

On 15 October, 2021, the Spanish government approved the draft of the 2022 Budget Act (“the 2022 Budget”). The 2022 Budget includes several tax measures aimed at increasing tax revenue.

For corporate income tax purposes, the Spanish Government proposes to implement the global minimum corporate income tax ahead of the agreement reached in Paris by the Organization for Economic Cooperation and Development (OECD) on the minimum Corporate Income Tax foreseen in Pillar II proposal.

As a result, among other amendments, the 2022 Budget proposes to establish a minimum corporate income tax of 15% for taxpayers with a net turnover equal to or above 20 million euros in the last twelve months or tax consolidated groups, in this case, regardless of the amount of their turnover.

The minimum tax will be 10% for newly created entities, currently taxed at 15%, and 18% for credit institutions, currently taxed at the general tax rate of 30%.

Under the current wording of the 2022 Budget, the minimum corporate income tax would be calculated by applying the minimum tax rate to the taxable base, with the possibility of deducting:

• Tax losses carried forward.
• Deduction corresponding to the capitalization reserve.
• Deduction corresponding to the leveling reserve.
• Deductions to eliminate double taxation.
• Deductions established by the Canary Islands Tax Regime.
• The taxable income affected by the Canary Islands Special Zone Regime (SEC regime).
• Deduction for investments made by port authorities.

As a result, the following credits will not reduce the net tax payable below the minimum tax:

• Deduction for research and development and technological innovation activities.
• Deduction for investments in cinematographic productions, audiovisual series and live shows of scenic and musical arts.
• Deductions for job creation.
• Deduction for job creation for disabled workers.

In addition, the 2022 Budget proposes to amend the special Corporate Income Tax regime for rental of dwellings which currently provides for an 85% credit on the tax due on the income arising from the rental of dwellings. Under the current wording of the 2022 Budget this tax credit would be reduced to 40%.

Key takeaways

The 2022 Budget will be sent to the Congress for debate and approval. If the Spanish Government obtains greenlight on the 2022 Budget, it is expected that these measures will go into effect on 1 January.

It is expected that minimum tax would substantially affect large taxpayers currently engaged in R&D activities or investing in audiovisual productions so it is advisable to review existing structures in order to assess the potential impacts.

In addition, it is advisable to review existing investments in entities applying the special Corporate Income Tax regime for rental of dwellings , since the profitability may be substantially reduced due to the proposed reduction of the tax credit.