Tax Developments Approved by Law 7/2024 of December 20

Fiscal innovations approved by Law 7/2024, of December 20, which establishes a Complementary Tax to guarantee a minimum global level of taxation for multinational groups and large national groups, a Tax on the interest and commission margin of certain financial entities and a Tax on liquids for electronic cigarettes and other tobacco-related products, and modifies other tax rules.

Last December, the long-awaited tax reform was approved and published in the BOE, which on the one hand introduces the so-called Minimum Tax (direct mandate from Europe) and introduces a series of modifications in other taxes with an impact for fiscal years beginning in 2024 and/or 2025, as the case may be.

News on Corporate Tax

1. With effect from 1 January 2024, section b) of article 15 is modified to consider the expense derived from the accounting of the Complementary Tax as a non-deductible expense.
2. With effect for tax periods starting from 1 January 2025, the tax incentive for the capitalization reserve is modified, which is intended to promote business capitalization by increasing net worth by introducing two improvements:
   • The percentage of reduction in the tax base is increased to 20%.
   • This incentive is enhanced by linking it to the increase in the average total workforce compared to the previous year and that said increase is maintained for three years.

The increases in the reduction of the The taxable base based on the increase in the workforce is as follows:

• 23%: if the average workforce in the tax period has increased, compared to the workforce of the previous tax period, by a minimum of 2% without exceeding 5%.
• 26.5%: if the increase in the average workforce of the previous tax period is between 5% and 10%.
• 30%: if the increase in workforce is greater than 10%

Maintenance of workforce: The aforementioned increase in workforce must be maintained for a period of 3 years from the close of the tax period to which the reduction corresponds.

Limits of the reduction: The amount of the reduction cannot exceed 20% of the tax base prior to the reduction and the compensation of BINs or 25% in the case that the INCN is less than €1,000,000, during the 12 months prior to the date on which the tax period to which this reduction corresponds begins.

3. With effect for tax periods starting from January 1, 2025 the tax rates are modified to reduce the rate applicable to certain companies progressively during the following years.

The modifications introduced in the tax rate are the following:

• For micro-SMEs (INCN previous year < 1 MM euros): 17% for the part of the base taxable income between 0 and 50,000 euros. For the remaining part of the base, the rate will be 20%.
• For small entities (INCN previous year greater than 1MM euros and less than 10MM euros) : 20%

A transitional regime for the general tax rate is established for the years 2025, 2026, 2027 and 2028, which is detailed in the following table:

4. Minimum taxation: In the case of entities whose INCN of the immediately preceding tax period is less than 1 million euros, for the purposes of determining the minimum net tax rate, the percentage It will be the result of multiplying the scale by fifteen twenty-fifths, rounded up.
   If the companies are small.

5. Limits applicable to large companies in tax periods starting on or after 1 January 2024

With effect for tax periods starting on or after 1 January 2024, the limit on offsetting negative tax bases for companies with a net interest income of at least 20 million euros is reinstated, accompanied by a new limit on the application of deductions for international or internal double taxation, generated or pending offset.

Taxpayers with a net asset value of at least 20 million euros will apply the following special provisions:

• Integration of provisions for impairment of credits and other assets of unrelated debtors, not owed by public law entities, and provisions or contributions to social security systems that have generated deferred tax assets (Art. 11 section 12 LIS). The integration into the tax base will be carried out according to the following limits:

• • Compensation of negative taxable bases

• • • Allocations for impairment of credits due to insolvency or for contributions to social security systems for tax group entities (art. 62 section 1 letter e). The following applicable limits are proposed:

• • • Special rules for the incorporation of entities in the tax group (art. 67 sections d) and e)

The following limits are established for the incorporation of provisions for insolvencies and compensation of negative tax bases within the tax group.

• • • Deductions to avoid international double taxation (arts. 31 and 32, art. 100 section 11. Joint limitation of 50% of the taxpayer’s total share for the following deductions:

✓ Deduction to avoid legal double taxation: tax borne by the taxpayer (art. 31 LIS).

✓ Deduction to avoid international economic double taxation: dividends and profit shares (art. 32 LIS).

✓ Taxes paid corresponding to imputed income or dividends from imputed income by the international tax transparency regime (art. 100 section 10).

✓ Transitional regime in the Corporate Tax of deductions to avoid double taxation (twenty-third transitional provision).

• • 6. Temporary measures for determining the tax base in the tax consolidation regime.

The measure provided for tax periods beginning in 2023, consisting of the non-inclusion in the consolidated tax base of a tax consolidation group of 50% of the negative individual tax bases of the entities comprising said group, is extended for the years 2024 and 2025.

Therefore, 50% of the negative individual tax bases of the entities comprising the tax group will not be counted for the purposes of determining the tax base of the tax group, in the tax periods beginning in 2024 and 2025.

For successive tax periods, the negative individual tax bases not included in the tax base of the tax group must be integrated by tenths, in successive periods beginning on or after:

• • 1. • 1 January 2024 when the above applies with effect for tax periods beginning in 2023.
       • 1 January 2025 when the above applies with effect for tax periods beginning in 2024.
       • 1 January 2026 when the above applies with effect for tax periods beginning in 2025.

This applies even if any entity in the group with negative individual tax bases is excluded from the group.

In the event of loss of the tax consolidation regime or extinction of the tax group, the amount of the negative individual tax bases that is pending integration into the group’s tax base will be integrated in the last tax period in which the group pays taxes under the tax consolidation regime.

• • 7. Transitional regime applicable to impairment losses on securities representing participation in the capital or equity of entities, and to negative income obtained abroad through a permanent establishment, generated in tax periods beginning before January 1, 2013.

• • 6. Temporary measures for determining the tax base in the tax consolidation regime.

The measure provided for tax periods beginning in 2023, consisting of the non-inclusion in the consolidated tax base of a tax consolidation group of 50% of the negative individual tax bases of the entities comprising said group, is extended for the years 2024 and 2025.

Therefore, 50% of the negative individual tax bases of the entities comprising the tax group will not be counted for the purposes of determining the tax base of the tax group, in the tax periods beginning in 2024 and 2025.

For successive tax periods, the negative individual tax bases not included in the tax base of the tax group must be integrated by tenths, in successive periods beginning on or after:

• • 1. • 1 January 2024 when the above applies with effect for tax periods beginning in 2023.
       • 1 January 2025 when the above applies with effect for tax periods beginning in 2024.
       • 1 January 2026 when the above applies with effect for tax periods beginning in 2025.

This applies even if any entity in the group with negative individual tax bases is excluded from the group.

In the event of loss of the tax consolidation regime or extinction of the tax group, the amount of the negative individual tax bases that is pending integration into the group’s tax base will be integrated in the last tax period in which the group pays taxes under the tax consolidation regime.

• • 7. Transitional regime applicable to impairment losses on securities representing participation in the capital or equity of entities, and to negative income obtained abroad through a permanent establishment, generated in tax periods beginning before January 1, 2013.

With effect for tax periods beginning on or after January 1, 2024, the reversal is established, in any case, of all those impairment losses that were tax deductible, in tax periods beginning before January 1, 2013, at least, in equal parts in the tax base taxable amount corresponding to each of the first three tax periods beginning on or after 1 January 2024.

In the event that a higher amount has been reversed, the remaining balance will be divided, at least, in equal parts between the remaining tax periods.

The limits on the BINs will not apply to the amount of income corresponding to the reversal of impairment losses included in the tax base of the aforementioned tax periods by application of the provisions of this section, provided that the negative tax bases subject to compensation originated in tax periods beginning before January 1, 2021.

However, in the event of the transfer of securities representing participation in the capital or equity of entities during the aforementioned tax periods, the amounts pending reversal will be included in the tax base of the tax period in which it occurs, with the limit of the positive income derived from that transfer.

News in personal income tax

• • 1. Donations to workers affected by the DANA by the companies.

Amounts paid on an extraordinary basis by employers to their employees and/or family members that are intended to cover personal injury and material damage to housing, belongings and vehicles suffered by employees and/or their family members on the occasion of the Isolated Depression at High Levels (DANA) that occurred in 2024 are declared exempt from both personal income tax and ISD.

For the purposes of this exemption:
a) Amounts paid by employers to their employees to cover damages caused by DANA and which are additional to the salary received by the latter will be considered extraordinary.

b) The status of being affected by DANA and the amount of the damages must be accredited by means of a certificate from the insurance company indicating the status of affected and quantifying the damages, or alternatively, if there is no insurance, from a Public Body.

c) The exemption will be limited to the amounts paid between October 29, 2024 and December 31, 2024, and up to the limit of the certified damages.

d) The amounts received by the workers will be integrated into the tax base in the part in which it exceeds the amount of the damages certified by the insurance company.

• • 2. Increase in the savings tax rate. Articles 66, 76 and 93 of the Personal Income Tax Law.

With effect from 1 January 2025, the tax rate applicable to taxable bases exceeding 300,000 euros is increased, from 28% to 30%.

• New tax reduction for certain exceptional income from artistic activities

With effect from 1 January 2025, a tax reduction is regulated for certain exceptional income from artistic activities. The main reductions are the following:

Reduction for work income:

• It applies to total income related to the creation of literary, artistic or scientific works and to the special employment relationship of artists who develop their activity in the performing, audiovisual and musical arts, including technical and auxiliary activities necessary for their development.
• If this income exceeds the average of those charged in the three previous tax periods by 130 percent, the excess is reduced by 30 percent, with the maximum limit on which the reduction is applied being 150,000 euros per year.

Reduction for income from economic activities:

• It applies to net income from certain activities included in certain groups of the Rates of the Tax on Economic Activities, or from the provision of professional services that, by their nature, if performed on behalf of another, would be included in the scope of application of the special employment relationship of artists, as well as of people who perform technical or auxiliary activities necessary for their development.
• If these net incomes exceed by 130% the average of those charged in the three previous tax periods, the excess is also reduced by 30%, with the same limit of 150,000 euros per year.

The following rules are established for calculating net income from economic activities:

1.º) Deductible expenses that are common to other income from economic activities will be prorated proportionally based on the amount of the various gross income from economic activities computed in said fiscal year.

2.º) If, in any of the three previous fiscal years, the net income was negative, it will be computed as 0 for the purposes of calculating said average.

The reduction will be applied after, where appropriate, the reductions provided for in sections 2 and 3 of article 32 of this Law.

New developments in the Value Added Tax

1. Operations similar to the import of goods

Article 19, paragraph 5, is amended to clarify who is responsible for paying the VAT similar to the import when the products are removed from the tax warehouse, establishing the rule that it will be the last depositor of the product to be removed, or where appropriate, the owner of the tax warehouse when it is the owner of the same who will be obliged to constitute and maintain a guarantee of the payment of the VAT corresponding to the subject and non-exempt deliveries made later.

2. Reduced tax rates

The wording of Section Two of Article 91 LIVA is modified to include fermented milk among the products that are taxed at the super-reduced rate of 4%.

According to this modification, from December 22, 2024, the following products will be taxed at a rate of 4%:

• Ordinary bread, as well as frozen ordinary bread dough and frozen ordinary bread intended exclusively for the production of ordinary bread.
• Baking flours.
• The following types of milk produced by any animal species: natural, certified, pasteurized, concentrated, skimmed, sterilized, UHT, evaporated, powdered and fermented.
• Cheeses.
• Eggs.
• Fruits, vegetables, legumes, tubers and cereals, which have the status of natural products in accordance with the Food Code and the provisions issued for its development.
• Olive oils. olive.
• 3. VAT on short-term housing leases

  The Government will promote the modification of the harmonised VAT Directive in the European Union to allow Member States to tax short-term housing leases, in those areas where this type of accommodation makes it difficult for citizens to access housing or promotes tourist saturation of the territory. The transposition of the Directive will be carried out urgently, involving the digital platforms that facilitate these leases so that they deal with the impact and collection of VAT.

  News in the General Tax Law

  With effect for tax periods starting on or after December 31, 2023, a new wording is given to section 1 of article 150 of Law 58/2003, of December 17, General Tax Law, which establishes that the actions of the inspection procedure when the object of the procedure is the verification or investigation of the Complementary Tax, must be concluded within 27 months.

  Given the complexity of the verification of this Complementary Tax, which may affect a multiplicity of related entities, it is considered appropriate to establish a period similar to that provided for the verification of taxpayers who are part of a group subject to the tax consolidation regime or the special regime for groups of entities.
  Other taxes

  With effect from January 1, 2025, a new Tax on Electronic Cigarette Liquids and other Tobacco-related Products is introduced.

  With effect for tax periods starting from January 1, 2024, the Tax on the interest margin and commissions of certain financial institutions is created.

  The Temporary Energy Tax regulated in article 1 of Law 38/2022, of December 27, for the establishment of temporary taxes on energy and credit institutions and financial credit institutions and by which the temporary solidarity tax on large fortunes is created, and certain tax rules are modified, is repealed.