Royal Decree 1178/2020, of December 29, amending the Corporate Tax Regulation approved by Royal Decree 634/2015

OFFICIAL STATE GAZETTE No. 340 Wednesday, December 30, 2020 Sec. I. Page 122993 I. GENERAL PROVISIONS MINISTRY OF FINANCE 17268 Royal Decree 1178/2020, of December 29, amending the Corporate Tax Regulation approved by Royal Decree 634/2015, of July 10. I This royal decree introduces modifications into the Corporate Tax Regulation, approved by Royal Decree 634/2015, of July 10, to adapt the current regulatory text to Circular 4/2017, of November 27, of the Bank of Spain, on public and reserved financial information standards and financial statement models for credit institutions, and to clarify the regulation of country-by-country information in relation to Council Directive (EU) 2016/881 of May 25, 2016, which amends Directive 2011/16/EU regarding the mandatory automatic exchange of information in the field of taxation, including the rules applicable to the submission of country-by-country information by multinational enterprise groups. II This royal decree consists of a single article and two final provisions. The single article modifies the Corporate Tax Regulation. The first final provision regulates the competence title. The second final provision sets the entry into force of the royal decree. III Article 13 of the Corporate Tax Law regulates the deductibility of impairment losses on the value of asset items, referring in its paragraph 1 to regulatory development to establish rules regarding the circumstances determining the deductibility of provisions for impairment of credits and other assets derived from possible insolvencies of debtors of financial entities and those concerning the amount of losses for covering the aforementioned risk. Articles 8 and 9 of the Regulation respond to this mandate by establishing the rules applicable to credit risk coverage in financial entities. On January 1, 2018, Circular 4/2017, of November 27, of the Bank of Spain, entered into force, whose objective was to adapt the accounting regime of Spanish credit institutions to changes in European accounting law derived from the adoption of two new International Financial Reporting Standards (IFRS) – IFRS 15 and IFRS 9. The new Circular makes it necessary to adapt Article 9, relating to credit risk coverage, to the new accounting terms used in said Circular, and Article 8 is also modified in its reference to a paragraph of Article 9. Secondly, the European Union approved Council Directive (EU) 2016/881 of May 25, 2016, including in it the rules applicable to the submission of country-by-country information by multinational enterprise groups. Country-by-country information was previously studied, prior to the aforementioned Directive, in Action 13 of the OECD Action Plan on Base Erosion and Profit Shifting ("BEPS Action Plan"), with its conclusions in this matter having the character of a minimum standard. cve: BOE-A-2020-17268 Verifiable at https://www.boe.es

OFFICIAL STATE GAZETTE No. 340 Wednesday, December 30, 2020 Sec. I. Page 122994 Although the Tax Regulation already includes the substantive aspects of the Directive and the minimum standard of Action 13, there are certain aspects, especially regarding the obtaining of information by entities resident in Spain from their foreign parent companies, which, in order to correctly transpose Community legislation and the aforementioned minimum standard, are deemed convenient to clarify. IV This royal decree, in accordance with what is prescribed in Article 129 of Law 39/2015, of October 1, on the Common Administrative Procedure of Public Administrations, has been drafted in accordance with the principles of necessity, effectiveness, proportionality, legal certainty, transparency, and efficiency. This royal decree is issued in exercise of the legal authorizations contained in Articles 13.1 and the tenth final provision of Law 27/2014, of November 27, on the Corporate Tax, and in Article 93 of Law 58/2003, of December 17, General Tax Law, as well as of the general regulatory power of the Government as established in Article 97 of the Constitution and in Article 22 of Law 50/1997, of November 27, on the Government, and under the provisions of Article 149.1.14th of the Constitution, which attributes to the State exclusive competence in matters of general finance. Therefore, upon proposal of the Minister of Finance, in agreement with the Council of State and after deliberation of the Council of Ministers in its meeting on December 29, 2020, I HEREBY ORDER: Single Article. Modification of the Corporate Tax Regulation, approved by Royal Decree 634/2015, of July 10. The following modifications are introduced into the Corporate Tax Regulation, approved by Royal Decree 634/2015, of July 10: One. Article 8 is modified, which shall read as follows: "Article 8. Scope of application. The provisions of this chapter shall apply to credit institutions obliged to prepare their individual annual accounts in accordance with the standards established by the Bank of Spain, as well as to branches of credit institutions resident abroad that operate in Spain. It shall also apply, where appropriate, to asset management companies referred to in Article 3 of Law 8/2012, of October 30, on the cleanup and sale of real estate assets of the financial sector, as well as to entities that are part of the same group of companies as the credit institution within the meaning of Article 42 of the Commercial Code, in relation to real estate assets assigned or received in payment of debts, under the terms established in paragraph 5 of Article 9 of this Regulation. Likewise, it shall apply to securitization funds referred to in Title III of Law 5/2015, of April 27, on the promotion of business financing, in relation to the deductibility of valuation corrections for impairment of debt instruments valued at amortized cost." cve: BOE-A-2020-17268 Verifiable at https://www.boe.es

OFFICIAL STATE GAZETTE No. 340 Wednesday, December 30, 2020 Sec. I. Page 122995 Two. Article 9 is modified, which shall read as follows: "Article 9. Coverage of credit risk.

1. Provisions corresponding to the coverage of doubtful risks resulting from individualized estimation or the application of internal methodologies for collective estimation of provisions provided for in Annex 9 of Circular 4/2017, of November 27, of the Bank of Spain, on public and reserved financial information standards and financial statement models for credit institutions, shall be deductible. However, the aggregate total of provisions resulting from internal methodologies for collective estimations shall only be deductible up to the aggregate total amount resulting from applying the coverage percentages estimated by the Bank of Spain as an alternative solution for such collective estimations contained in the aforementioned Annex 9. In the case of entities that have not developed internal methodologies, provisions for coverage of doubtful risks resulting from applying the coverage percentages estimated by the Bank of Spain as an alternative solution indicated in the previous paragraph shall be deductible, up to a maximum.
2. Regarding the coverage of the so-called country risk, provisions that do not exceed the aggregate total amount resulting from applying the coverage percentages estimated by the Bank of Spain as an alternative solution in Annex 9 of Circular 4/2017, of November 27, of the Bank of Spain, shall be deductible.
3. In no case shall provisions corresponding to the coverage of risk of the following credits be deductible: a) Those identified as operations without appreciable risk according to Annex 9 of Circular 4/2017, of November 27, of the Bank of Spain. b) Those owed or guaranteed by public law entities, except when they are the subject of an arbitral or judicial procedure regarding their existence or amount. c) The part of credits guaranteed with effective real guarantees, determined in accordance with Annex 9 of Circular 4/2017, of November 27, of the Bank of Spain, and after applying the discounts on the reference value established therein. d) The part of credits guaranteed by guarantors identified as having no appreciable risk or with credit insurance or surety contracts. e) Those owed by related persons or entities according to what is established in Article 18 of the Tax Law, unless they are in a state of insolvency proceedings, and the opening of the liquidation phase by the judge has occurred, under the terms established in the consolidated text of the Insolvency Law, approved by Royal Legislative Decree 1/2020, of May 5. f) Those owed by political parties, trade unions, business associations, professional colleges, and official chambers, unless they are in a state of insolvency proceedings, and the opening of the liquidation phase by the judge has occurred, under the terms established in the consolidated text of the Insolvency Law, approved by Royal Legislative Decree 1/2020, of May 5, or other duly justified circumstances exist that evidence reduced possibilities of collection. g) Regarding the coverage of the so-called country risk, provisions to cover off-balance sheet exposures shall not be deductible.
4. Provisions corresponding to normal risk and normal risk under special surveillance referred to in Annex 9 of Circular 4/2017, of November 27, of the Bank of Spain, shall be deductible, with the limit of the result of applying one percent on the global positive variation in the tax period of the amount of risks that, according to the criteria established in the aforementioned Annex 9, should be subject to coverage, excluding those corresponding to the credits listed in paragraph 3 of this article and to securities traded on organized secondary markets. cve: BOE-A-2020-17268 Verifiable at https://www.boe.es

OFFICIAL STATE GAZETTE No. 340 Wednesday, December 30, 2020 Sec. I. Page 122996 5. For the purposes of what is provided in this article, provisions for impairment of real estate assets assigned or received in payment of debts of credit institutions to which Section V of Annex 9 of Circular 4/2017, of November 27, of the Bank of Spain, applies, which remain in the balance sheet of the credit institution, shall be deductible, provided they do not exceed the amounts resulting from what is established in said Section V. In the event that real estate assets assigned or received in payment of debts of credit institutions are contributed, transferred, or maintained in an asset management company referred to in Article 3 of Law 8/2012, of October 30, on the cleanup and sale of real estate assets of the financial sector, or in an entity that is part of the same group of companies as the credit institution within the meaning of Article 42 of the Commercial Code, provisions for corrections derived from the loss of value of assets shall be deductible, provided that the criteria of Circular 4/2017, of November 27, of the Bank of Spain, are respected and up to the maximum amount resulting from applying the aforementioned Section V, whether they consist of provisions for impairment of real estate assets made in those companies or entities or, where appropriate, provisions made in the credit institution for impairment of their holdings in them or for other impairments derived from the loss of value of real estate assets. However, the aforementioned deductible provisions in the credit institution shall have as a limit the maximum amount referred to in the previous paragraph reduced by the provisions for impairment of real estate assets that would have been fiscally deductible in the aforementioned companies and entities. In this case, if the special tax consolidation regime regulated in Chapter VI of Title VII of the Tax Law applies, the amount that is fiscally deductible shall not be subject to elimination. In the event that, according to current regulations, the credit institution could not apply the special tax consolidation regime with the aforementioned companies or entities, the provisions for impairment of real estate assets in the latter shall have as a limit the maximum amount referred to in the second paragraph of this section, reduced by the provisions for impairment of holdings or for other impairments derived from the loss of value of real estate assets that would have been fiscally deductible in the credit institution, in accordance with what is established in said paragraph." Three. Paragraph 1 of Article 13 is modified, which shall read as follows: "1. Entities resident in Spanish territory that have the status of dominant entities of a group, defined in the terms established in Article 18.2 of the Tax Law, and are not at the same time dependent on another entity, resident or non-resident, shall provide the country-by-country information referred to in Article 14 of this Regulation. Likewise, this information shall be provided by those entities resident in Spanish territory dependent, directly or indirectly, on a non-resident entity that is not at the same time dependent on another, as well as by permanent establishments in Spanish territory of non-resident entities of the group, provided that any of the following circumstances occur: a) That there is no obligation to provide country-by-country information in terms analogous to those provided in this section regarding the aforementioned non-resident entity in its country or territory of tax residence. cve: BOE-A-2020-17268 Verifiable at https://www.boe.es

OFFICIAL STATE GAZETTE No. 340 Wednesday, December 30, 2020 Sec. I. Page 122997 b) That, although there is an international agreement within the meaning of Council Directive (EU) 2016/881 of May 25, 2016, amending Directive 2011/16/EU regarding the mandatory automatic exchange of information in the field of taxation, with the country or territory where the aforementioned non-resident entity is tax resident, there is no agreement on the automatic exchange of information between competent authorities regarding said information with the said country or territory. c) That, although there is an agreement on the automatic exchange of information regarding said information with the country or territory where the aforementioned non-resident entity is tax resident, a systematic breach of the same has occurred that has been communicated by the Spanish tax administration to the dependent entities or permanent establishments resident in Spanish territory within the time limit provided for in this section. Notwithstanding the above, there shall be no obligation to provide the information by the aforementioned dependent entities or permanent establishments in Spanish territory when the multinational group has designated a dependent entity constituting the group that is resident in a Member State of the European Union to present the said information, or when the information has already been presented in its tax residence territory by another non-resident entity designated by the group as a substitute for the parent entity for the purposes of such presentation. In the event that it is a substitute entity with tax residence in a territory outside the European Union, it must meet the conditions provided for in paragraph 2 of Section II of Annex III of Council Directive 2011/16/EU of February 15, 2011, on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC. In the event that, although there are several dependent entities resident in Spanish territory, one of them has been designated or appointed by the multinational group to present the information, only this one shall be obliged to such presentation. The provisions of the previous paragraph shall not apply when the designated or appointed entity could not obtain all the necessary information to present the country-by-country information in accordance with what is established in the following article. Likewise, within the scenario provided for in the second paragraph of this section, the entity resident in Spanish territory or the permanent establishment in Spanish territory obliged to present the country-by-country information shall request the corresponding group information from the non-resident entity. If the non-resident entity refuses to supply all or part of said information, the entity resident in Spanish territory or the permanent establishment in Spanish territory shall present the information they have available and notify this circumstance to the tax administration. For the purposes of what is provided in this section, any entity resident in Spanish territory that is part of a group obliged to present the information established herein shall communicate to the tax administration the identification and the country or territory of residence of the entity obliged to prepare this information. This communication must be made before the end of the tax period to which the information refers. The deadline for presenting the information provided for in this section shall expire twelve months after the end of the tax period. The supply of said information shall be carried out in the model prepared for this purpose, which shall be approved by Order of the Minister of Finance." cve: BOE-A-2020-17268 Verifiable at https://www.boe.es

OFFICIAL STATE GAZETTE No. 340 Wednesday, December 30, 2020 Sec. I. Page 122998 First Final Provision. Competence title. This royal decree is approved under the provisions of Article 149.1.14th of the Constitution which attributes to the State exclusive competence in matters of general finance. Second Final Provision. Entry into force. This royal decree shall enter into force the day following its publication in the "Boletín Oficial del Estado", and shall have effect for tax periods beginning from January 1, 2020, and which have not concluded upon the entry into force of this royal decree. Given in Madrid, December 29, 2020. FELIPE R. The Minister of Finance, MARÍA JESÚS MONTERO CUADRADO cve: BOE-A-2020-17268 Verifiable at https://www.boe.es https://www.boe.es OFFICIAL STATE GAZETTE D. L.: M-1/1958 - ISSN: 0212-033X