Fiscal consolidation: formal aspects

If you have a group of companies, consider opting for thetax consolidation regime.

For this system to apply next year, you must opt for it before the end of this year.

What is Fiscal Consolidation?

What does it consist of?

Advantages of tax consolidation.

If your company is part of a business group, you can qualify for the corporate income tax (IS) tax consolidation regime before the end of the financial year by fulfilling certain requirements.

This will be applicable from the following year onwards.

This regime has important advantages;

Among others:

The possibility of offsetting, within certain limits, the tax losses and taxable profits obtained by the companies that form part of the group, allowing these companies to be taxed as if they constituted a single company.
The possibility of complying with the requirements and limits that are demanded in order to enjoy certain incentives and deductions as a group, which makes it easier for these tax advantages to be applied.
The elimination of many internal transactions, so that the profits generated by them are not taxed until they are realised vis-à-vis third parties (until the goods transferred internally are sold to third parties, for example).

Reduced tax consolidation obligations

In addition, taxation under the tax consolidation regime also makes it possible to reduce the costs of complying with certain formal obligations by exempting some of them:

Companies in the same group are not obliged to make withholding taxes on income paid to other companies in the group (interest, leases, etc.).
They are also exempt from most of the documentation obligations for related-party transactions between group companies.

Requirements Tax consolidation group of companies

Parent company

In order to apply this regime, the rules require the existence of a parent company – a holding company – and one or more subsidiaries dependent on it.

The parent company must meet the following main requirements:

Directly or indirectly hold at least 75% of the share capital of the subsidiaries (70% in the case of listed companies) and hold the majority of the voting rights.
Maintain this holding throughout the tax period, except in the event of early dissolution of the investee.
Not be, in turn, a subsidiary of another company that qualifies as a parent company.

Non-resident company

The parent company may be a non-resident entity.

In this case, however, the tax consolidation group may only consist of resident companies.

In such cases, the holding company must designate another company in the group as its representative in Spain, and the latter must notify the tax authorities of its designation before the end of the year.

Subsidiaries

A subsidiary is considered to be any company resident in Spain in which the parent company has an interest and in which the latter has the aforementioned minimum shareholding.

Options for the tax consolidation regime

Company agreements

Management body

In order for this regime to be applicable, it is indispensable that all the companies that are to form part of the group (i.e. the parent entity and all its investees of at least 75%) agree to it.

The decision must be approved by the management body of each of them.

If the tax consolidation regime is chosen, the parent company and all entities that qualify as subsidiaries must opt for it (it is not possible for some to opt for it and not others).

Type of body

The way resolutions are formalised depends on the type of body:

In the case of companies managed by a board of directors, it is that body that must take the resolution and reflect it – signed by the chairman and the secretary – in the minutes book of the board.
In the case of companies where there is no board and there is a sole director or several directors, it is up to the latter to take the resolution.

This agreement must be taken by all the companies in the tax consolidation group at any time during the tax period immediately preceding that in which the regime is intended to be applied, and is effective from the following tax period.

Tax year

Note also that the tax year of the tax group coincides with the tax year of the parent company (or that of the representative if the parent is non-resident).

Therefore, all group companies must end their tax year on the same date as the parent.

If a subsidiary does not close its financial year on the same date as the parent, this does not generally lead to its exclusion from the tax group.

However, the tax authorities may consider that a tax infringement has been committed and impose a penalty.

In such cases, at the closing date of the parent company’s financial year, the subsidiary must prepare interim financial statements for the purpose of quantifying its accounting profit and the taxable income to be contributed to the tax group.

The option for the tax consolidation regime must be exercised by all the companies in the group at any time during the financial year prior to that in which it is intended to be applied.

It must then be notified to the tax authorities.

AEAT tax consolidation regime

Notification

The parent company (or the representative, if applicable) must notify the tax authorities of the option to apply this system before the start of the tax period from which it is intended to take effect.

In this respect, such notification must be made within the same tax year in which the agreements to apply the system must be adopted.

Therefore, if the companies in the group have a financial year that coincides with the calendar year, in order to be able to apply the regime in 2025, all the companies must adopt the agreements to join the group before the end of 2024 and the parent company must notify this circumstance to the Tax Authorities by 31 December 2024 at the latest.

Content

The communication to the tax authorities must contain the following minimum content:

The identification of all the companies (both the parent and the subsidiaries).
Details of the shareholding (direct and indirect) held by the parent company in the other companies, indicating the percentage of voting rights and the date on which the shareholding was acquired.
A statement that the requirements for taxation under this regime are met.
A copy of the certificates of the resolutions adopted.
If the parent entity is a non-resident entity, the document designating the representative company in Spain must also be included.

Once this communication has been received, the tax authorities will notify the parent entity of the tax group number that has been granted to it.

This number must be included in the tax returns of the consolidated group (form 220) and serves as a reference in all dealings with the tax authorities.

Delay

It can be understood that the late submission of such a communication does not prevent the application of the regime, provided that the administrative body of each company has adopted the resolutions in due time.

This was the Treasury’s criterion in the past.

However, it is advisable to avoid risks and to submit the communication within the time limit.

Duration

Once the agreements to join the regime have been adopted in due time and the corresponding notification has been made to the tax authorities, the tax consolidation regime is applicable indefinitely for as long as the requirements are met, unless it is waived.