The Spanish government’s rescue plans are being rolled out. First, it was the housing market’s guarantee scheme which would enable the property market to concentrate on the government subsidized housing programme (VPO); then the bank aid scheme, with a maximum of €150 million in guarantees and the purchase of assets, and now it’s the turn of the biggest companies in Spain, many of which are listed on the Ibex 35 index of the top companies in Spain.
After lengthy discussions between companies, groups affiliated to the socialist party and the CiU, an agreement has been reached: companies will be able to claim tax relief in Spain on the losses incurred from their subsidiaries abroad. This help will create a tax incentive for those companies which have been exposed to more risk - something which large, rather than medium-sized businesses, are encountering. The loss in value will be calculated “according to stake.”
This change will allow a modification in the Company Tax law article 12.3 in such a way that it allows for business losses for depreciation, as long as they are not listed on any market.
The relief will not be required to appear in the company´ s profit and loss account since the new accounting regulations prevent the inclusion of this type of item as allowance for depreciation in portfolio. However, the decrease in the value of the subsidiaries will be taken into consideration in the calculation of its value at the end of the financial year, “on the condition that it is approved by the competent organisms” which effectively makes it act as a control requirement.
The debate continues however, in the case of those losses incurred from depreciation through stakes in companies in countries or territory considered to be tax havens.
The point of contention is the fact that a lot of the subsidiaries which will trigger this mechanism are countries, for example, in Latin America, which cannot guarantee the control of depreciation in assets and which could use this as a means of justifying relief, something which is difficult to prove and control for the Spanish tax authorities.
According to CiU, the reform of the 2007 accounting law, on the adaptation of commercial accountancy legislation for international harmonization and its inclusion in the new General Accounting Plan, has generated a tax problem, which coupled with the present world economic recession has seriously affected the competitiveness and internationalisation of the biggest Spanish companies, and in the short term, their financial situation.
The regulations concerning allowances for depreciation in subsidiaries and participant companies was modified in this accounting reform and the possibility of gaining relief through this type of allowance was invalidated through company taxation legislation Article 12.3.
The Increasing Importance of Foreign Trade
Foreign trade is an important source of income for Spanish businesses. According to the Bank of Spain Centre for Economic Balances, while net ordinary results for companies inside Spain is falling at a rate of 3.6%, the dividends received from mainly foreign subsidiaries account for approximately half the increase in financial income in the last 2 years.
Experts point out that in periods of deceleration in the Spanish economy, international activity becomes more important. The problem is, however, that the profound crisis is also being experienced abroad. According to the OECD (the Organization for Economic Cooperation and Development), the entire world is in recession. Thus, the modification means a breathing space for large companies whose activities abroad are feeling the pinch.
The government does not provide information on foreign subsidiary turnover, but the activity within the country gives us some idea of its importance. According to information from INE (The National Statistics Institute), foreign companies operating in Spanish territory generate almost 17% of the total turnover of businesses in the service sector, which represents two thirds of Spanish GDP and more than 66% total employment.