New rules against hybrid tax mismatches for companies

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1. This royal decree-lawroyal decree-law A rule with the force of law that the Government passes because it is urgent. It applies from its publication, but the Congreso must validate it within 30 days or it lapses. 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. Law with rules to neutralize hybrid mismatches, that is, situations where the same expense or income gets different tax treatment in two countries.
2. As a general rule, if an expense deducted in Spain does not generate taxable income in the other country, that expense is no longer deductible. In some cases, instead of denying the expense, the income must be included in the taxable base.
3. Expenses denied under these rules can be deducted later, generally within the following three years, if they are offset by income taxed in both countries.
4. The rules also apply to transactions between unrelated parties when they are part of a structured arrangement, meaning a setup designed to obtain the tax advantage of the mismatch.
5. New sections are added to Article 18 of the Non-Resident Income Tax with similar rules for permanent establishments, and Article 15.j) of the Corporate Income Tax Law, which covered hybrid financial instruments, is repealed.
6. The rule takes effect the day after publication in the BOE and applies to tax periods starting on or after January 1, 2020 that have not ended by then.

Who it affects

• Companies paying Corporate Income Tax in Spain: They may see deductions denied for certain expenses paid to foreign entities if those expenses are not taxed there.
• Non-residents with a permanent establishment in Spain: They are subject to the new Article 18 rules on expenses between the establishment and its head office.
• Companies using international setups with hybrid entities or instruments: They lose the tax advantage they obtained through those structures.

Words worth knowing

Asimetría híbrida (hybrid mismatch)

A situation where the same expense or income gets different tax treatment in two countries, for example, deducted in one but not taxed in the other.

Deducción sin inclusión (deduction without inclusion)

When someone deducts an expense from their taxes but that same money is not taxed as income in the other country.

Entidad híbrida (hybrid entity)

An entity treated as a taxpayer in one country, but whose income or expenses are attributed to other people in another country.

Mecanismo estructurado (structured arrangement)

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

Base imponible (taxable base)

The amount of money on which the tax is calculated, before applying the tax rate.

royal decree-law

A rule with the force of law that the Government passes because it is urgent. It applies from its publication, but the Congreso must validate it within 30 days or it lapses.

decree-law

A rule with the force of law that the Government passes because it is urgent. It applies from its publication, but the Congreso must validate it within 30 days or it lapses.

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