Corporate Income Tax: a roller coaster of reforms in Spain

The caretaker government will undertake the Corporate income Tax reform and  re-implement installment payments. This measure is being accused as confiscatory by labor unions and the opposition parties.

The caretaker government will make effective through law-decree the Corporate income tax reform that was announced last July; and by which is trying to increase the State’s profits in E6bn by advancing this tax charge to businesses earning more than E20m yearly.

This measure has provoked strong controversy, as companies, labor unions such as UGT and opposition parties are arguing with the government whether it is a covered corporate income tax increase. While the Executive is defending that this measure does not mean for businesses to pay more tax but to pay it earlier, other parties are replying  that this is a confiscatory measure because the State can use other resources such as for instance bonds or debt issuance.

The Corporate Income Tax installment payments at a minimum rate was implemented by the government in 2012,  alleging that it was an extraordinary measure to ease economic crisis’ effects and to get liquidity for the State.

The government insisted then that this tax modification would be temporary and it would consist in maintaining a 12% rate for companies earning more than E20m. This measure was in place until 2015 when it was annulled.

This cancellation was announced with great fanfare but it had an unforeseen side effect: it provoked a downturn of 40% of State’s Corporate Income tax profits from January to July 2016.

Shortly after, the government has decided to introduce again this tax installment payment system. This sudden tax profits fall does not seem to be the only cause. Brussels has initiated a sanction procedure to Spain for not submitting on time the General State Budget to the European Commission due to the institutional blockage and the non-compliance of the public deficit goal.

Besides, the Corporate Income  Tax  instalment payments’ re-implementation was one of the agreed measures with the EC to comply with the public deficit  and it  would likely avoid a  EC’s fine to the State (next 15th October the government will be reviewed and it will be decided whether a sanction applies  or not) and to get back what it was not collected for this tax: E3bn during the first month of application and E6bn in total to be collected by the Spanish Tax Agency.

The fight against the public deficit and the intention to balance the State’s accounts during economical crisis are always praiseworthy undertakings as long as the initiatives do not play discretionally with the tax rules’ legal loopholes;  especially if the intention is to get liquidity at all costs.

The State should get liquidity from other resources, such as public bonds,  instead of drawing directly from taxation through the Corporate Income Tax. Re-implementing installment payments when they had been derogated just months ago reflects the government’s tax incoherence.

In this sense, taxation security is also important and at the same time represents a great tool to stimulate the economic recovery , and should never be trivialized.

Del Canto Chambers is specialized in tax law and you will give you advice, if you are willing to meet us at

Del Canto Chambers’ Editorial Board

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