Artículo Belén


Tax bias in dividends of multinational companies

AUTHOR: Belén Fernández. Partner at Bové Monteros y Asociados


Eliminating the full exemption on dividends received by holding companies is a measure with a purely tax-raising purpose and no technical or fiscal reasonableness.

The General State Budget for 2021 on which the Government is working is aimed at maintaining the 2018 project’s forecast in the sense of eliminating the full exemption on dividends received by holding companies. This will significantly affect both multinational groups and family businesses that usually coordinate their investments and business growth through holding companies.

At present, when a subsidiary distributes its profit through a dividend to its parent company, the latter integrates it into its own accounting results and, therefore, into the taxable income for income tax purposes, on which the 25% tax rate is applied.

However, tax regulations have historically established mechanisms to eliminate, to a greater or lesser extent, the double taxation that would occur if we included in the tax base of the parent or holding company a profit, distributed through a dividend, that was previously taxed at the headquarters of the subsidiary before being distributed as a dividend. If this were the case, we would be faced with the fact that a profit of 100 monetary units obtained by a holding company would end up being taxed at 43.75% in the context of corporate income tax, and this would not take into account taxation at the place of the individual, if this dividend is finally distributed to the partner, with tax rates of 19% to 23%.

The current Corporate Income Tax Act provides for a 100% exemption on dividends received by holding companies from their subsidiaries, whether these are resident or, conversely, not resident in Spanish territory. In short, they are eliminated from the tax base for corporate income tax.

This exemption applies provided that certain requirements are met, including a minimum holding of 5% or an acquisition cost of more than Euro 20 million, and that the holding has been maintained during the year prior to the date on which the dividend to be distributed is due, with the possibility of meeting the holding period in the future.

In the case of non-resident subsidiaries, they are also required to have been subject to and not exempt from a foreign tax of the same or similar nature as our corporate income tax at a nominal rate of at least 10%.

The requirement described in the previous paragraph is understood to be fulfilled when the subsidiary entity is resident in a country with which Spain has signed an agreement to avoid international double taxation, which contains an exchange of information clause.

Unfortunately, as pointed out at the beginning of this analysis, everything points to the fact that the situation may change with effect from 2021, i.e. the exemption will not be full but the amount exempted will be limited to 95% of the dividends.

Finally, it should be noted that the current full exemption on dividends also applies to profits made on the transfer of shares, subject, of course, to certain conditions. The reason behind this is also the elimination of the double taxation of such gains, whether express or implied, which have already been or will be taxed. It appears that the full exemption will be reduced to 95% as in the case of dividends.

In short, a measure with a purely tax-raising purpose and no technical or fiscal reasonableness.


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