CMS Expert Guide on substance issues across Europe in Spain

In Spain, the mechanism most commonly used by the tax authorities to consider the substance of companies is the “conflict in the application of the tax law”. This mechanism is regulated in the Spanish general tax law and establishes that there will be a conflict when the taxable base is avoided through acts in which the following circumstances concur:

• That they are artificial or improper for the achievement of the result obtained
• That their use does not result in relevant legal or economic effects, other than tax savings

Entities that meet any of the following requirements will be considered as tax resident in Spain: (i) incorporated under Spanish law, (ii) having their registered office in Spanish territory or (iii) having their effective place of management in Spanish territory.

In addition, the tax authorities may assume that an entity located in a non-taxable country is resident in Spanish territory when its main assets, directly or indirectly, consist of assets situated or rights that are exercised in Spanish territory, or when its main activity is carried out in Spanish territory.

There are reports made by the tax authorities, which are a useful source of information on substance criteria.

These reports are called “reports of the advisory committee on the conflict in the application of the tax law”. In them, we can see the factor considered by tax authorities in order to determine whether or not there is sufficient substance.

The following are a selection of the requirements:

• Companies must have necessary employees and board members
• The company must carry out a real economic activity
• Existence of tangible or intangible assets, equipment or facilities
• The profit and loss account must be consistent with the company’s activity

Companies must carry out a real economic activity. In the report, the tax authorities considered as an indication of lack of substance that the company had no customers, suppliers, or payments for supplies.

Companies must have the necessary employees and board members to carry out their corporate purpose. In the report, an indication of lack of substance is considered when there are no employees or when they do not carry out any activity.

The existence of equipment, facilities and premises is advisable. However, there are no specific provisions which require a company to have premises in Spain.

There are no specific provisions which require a company to have a local bank account. However, in order to comply with Spanish tax obligations, it is strongly advisable to have one.

At present, none.

Same as those applied to a Spanish company.

The implementation of ATAD 3 into Spanish domestic tax law will establish a more formal and binding substance framework.