Corporate Tax Rule


Finally, a year and a half after the new Corporation Tax Law came into force, the Royal Decree 537/1997 of the 14 of April appears, which approves the awaited and necessary Regulation of Corporate tax.

We are pleased to give an insight into those aspects, which are not entirely different from the standing norms but which do fill in some of the legal gaps which have been awaiting development.


I.- Depreciations.

The content and structure of the special depreciation plans which taxpayers will be able to submit to the Tax Authorities is established in relation to their tangible and intangible assets.

The method to calculate the depreciation of “used or second hand” tangible assets is modified (items, which are not put into operation for the first time.) The amount of the effective depreciation will be the result of the following:

Depreciation = (acquisition price x % maximum depreciation straight line rate) x 2

Two new assets have been incorporated in the present Annual Depreciation Rates Table.

Assets Maximum rate Maximum time

Film productions

Software 33%

33% 6 years

6 years

II.- Related transactions.

The rule provides the following

The procedure that the Tax Authorities should follow in order to assess the normal market value in operations performed between related companies or persons. If the implied parties do not agree with the Authority’s resolution, they can claim against the administrative decision.

The proceedings that the taxpayer should follow to present proposals to the tax Authorities to assess the transactions performed by the related parties. The said proposals should be presented before performing the respective operations, which will only be valid for:

The assessed valuation of operations between related parts.

The deduction due to Research and Development ( R & D) expenses accrued by a related party.

The deduction of management support service expenses in the related companies.

The application of a different undercapitalisation rate from the one provided in article 20 of the Corporation Tax Law.

Hereby, taxpayers that obtain a resolution from the Authorities can be sure that in the future, the values they apply in related transactions will not be subject to further discussion.


III.- Special criteria for temporary attribution of income and expenses.

Companies which use a temporary attribution of income and expenses different to the one accrued will be able to present a request to the Tax Authorities to apply for lower or higher rates even though different to the legally established ones be effective for tax purposes.

The aforementioned request should be presented in at least six months before the conclusion of the first tax term within which it is to be effective and should contain the specific data envisaged in the tax regulation.


IV.- Reinvestment of fringe benefits.

The procedure for tax payers to follow for the special reinvestment plans they present to the Tax Authorities. In the event of total or partial infringement of the formulated reinvestment plan, the tax payer will be obliged to adjust his tax situation, and to comply with the corresponding delayed payment interests.

The compatibility has been introduced between the special reinvestment exemption system and the general one for deferment in relation to small sized companies (with a turnover of less than 250 million) in those cases in which the income obtained due to the transfer of the fixed assets is greater than 50 million pesetas.


V.- Income obtained without a permanent establishment.

As a general rule, the returns must be filed and the tax must be paid within the month following the accrual of the income.

Regarding withholding tax which every purchaser is obliged to pay, in the transfer of real property located in Spain sold by non-resident tax payers who act without a permanent establishment, the minimum length of time which the property must be owned by the non-resident seller so as not to incur the aforementioned withholding has been reduced from 20 to 10 years.


VI.- Exceptions of the obligation to withhold and tax payable on account.

A closed list is introduced in which the cases exempt of obligation to withhold or to pay are detailed.


The information contained herewith is merely a first approach to the subject and cannot be considered as detailed advice on the matter, therefore it is recommendable that should one require, to seek legal advice on their particular case, prior to taking action or undertaking measures.