Corporate Tax Law Reform (Second Phase)

3 March 2008

On July 5, 2007 Official State Gazette issue no. 16/2007 dated July 4 published the reform and adaptation of commercial legislation for accounting to bring Spanish legislation into line with the European Union regulations.

The eighth provision of said Act contains the most substantial modifications affecting the Corporate Tax as a result of the process of adapting accounting rules to the EU regulations.

Said modifications include, amongst others, the introduction of fair value as the new value criteria for the calculation of Corporate Tax resulting from the aforementioned harmonization process.

In particular, the introduction of fair value as the value criteria applying to financial instruments affects the criteria for the tax deduction of the provisions related to the effective accounting depreciation of these instruments.

On the other hand, the tax deduction for the goodwill depreciation has been maintained even though new requirements for the tax deduction have been introduced.

Another highlight is the modification resulting from the introduction of the fair value as value criteria applying to company reorganizational operations (mergers, splits, contributions, sale of company assets, acquisition of controlling share) now called business combinations, as the tax validity of the accounting value obtained by applying the fair value in the so-called business combinations is admitted.

Finally, there is the modification to the tax regime for deductions on reinvestments of extraordinary gains which eliminates discrimination based on the type of activity of the reinvestment beneficiary.

For further information, please contact Victor Manzanares Saínz: vmanzanares@mmmm.es