New rules against tax avoidance through hybrid cross-border arrangements

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1. The law adds a new Article 15 bis to the Corporate Income Taxincome tax The personal income tax (IRPF in Spain): what people pay on what they earn from work, business or savings. that denies the deduction of expenses from transactions with related parties abroad when, due to different tax treatment between countries, those expenses do not generate taxed income in the other country. In some cases the denied expense can be deducted in the following three years if it is later offset by income taxed in both countries.
2. The deduction is also denied for expenses that directly or indirectly finance hybrid mismatches arising in third countries, unless one of the affected countries has made an equivalent adjustment. The rules also cover hybrid permanent establishments, double deductions and tax residence mismatches.
3. The rules also apply to transactions between unrelated parties if they are part of a structured arrangement, meaning a setup designed to exploit the tax advantage of the hybrid mismatch.
4. The Non-Resident Income Tax gets its own rules for hybrid mismatches involving permanent establishments, and refers to the Corporate Income Tax rules for all other cases.
5. The law repeals Article 15.j) of the Corporate Income Tax, the previous rule on hybrid financial instruments, and adjusts Article 16.1 to the new regulation.
6. The law modifies the obligation to report assets held abroad (model 720) following a European court ruling, and changes the regime for unjustified capital gains under personal income tax. It takes effect the day after publication, applying to tax periods starting on or after January 1, 2020.

Who it affects

• Companies paying Corporate Income Tax that operate with related entities abroad: They may see the deduction of certain expenses denied when they create hybrid mismatches.
• Non-residents with a permanent establishment in Spain: The new Non-Resident Income Tax rules on non-deductible expenses apply to them.
• People with accounts, assets or virtual currencies abroad: They must keep reporting them to the Tax Agency under the adjusted model 720 regime.
• Personal income tax taxpayers: The regime for unjustified capital gains is updated.

Words worth knowing

Asimetría híbrida (hybrid mismatch)

A situation where two countries treat the same transaction or entity differently, allowing less tax to be paid, for example deducting an expense without the matching income being taxed anywhere.

Persona o entidad vinculada (related party)

A company or person closely linked to the taxpayer, for example through significant shareholdings, influence over its management or acting jointly.

Establecimiento permanente (permanent establishment)

A kind of branch of a foreign company in Spain, which pays tax there on its activities.

Renta de doble inclusión (double inclusion income)

Income taxed in both countries at the same time; it can offset expenses that could not previously be deducted.

Mecanismo estructurado (structured arrangement)

A setup or transaction designed to exploit the tax advantage of a hybrid mismatch.

income tax

The personal income tax (IRPF in Spain): what people pay on what they earn from work, business or savings.

It summarizes the law as published in the BOE. It is written by artificial intelligence and may contain mistakes: the official text is what counts. Read the official text · How we make summaries