Executive summary

On 21 December 2024, the Official State Gazette published Law 7/2024 of 20 December 2024 (Global Minimum Tax Law),¹ which implements a top-up tax for large multinational and domestic groups in Spain. The approval of the Global Minimum Tax Law complies with the transposition obligation of the European Union Council Directive 2022/2523 of 15 December 2022 (EU Pillar Two Directive).²

This EU Pillar Two Directive finds its source in the Pillar Two Model Rules³ (OECD Model Rules) as approved by the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which seeks to achieve the establishment of a global minimum taxation of 15% for multinational groups.

The Global Minimum Tax Law closely follows the configuration of the global minimum tax defined in the EU Pillar Two Directive and the OECD Model Rules. The Global Minimum Tax Law is structured as a separate tax law not embedded in the existing Spanish Corporate Income Tax Law.

The Global Minimum Tax Law implements: (1) a Domestic Minimum Top-up Tax (DMTT, which is expected to be considered as "Qualified" as per the OECD standards — i.e., QDMTT); (2) an Income Inclusion Rule (IIR) which will be effective retroactively for fiscal years starting on or after 31 December 2023; and (3) an Undertaxed Profits Rule (UTPR) that will apply for fiscal years starting on or after 31 December 2024. The legislation also includes a Transitional Country-by-Country Reporting (CbCR) Safe Harbor, a Transitional UTPR Safe Harbor and a QDMTT Permanent Safe Harbor. However, the final legislation does not include the interpretative clause mandating the dynamic interpretation of the Spanish domestic rules in accordance with the OECD guidance that was included in the first Draft Bill released for Public Consultation.

Detailed discussion

In accordance with the OECD Model Rules and the EU Pillar Two Directive, the Global Minimum Tax Law implements minimum effective taxation of 15% for large multinational enterprise (MNE) groups and large-scale domestic groups with annual revenues of at least €750m in at least two of the last four fiscal years. It sets forth a system consisting of two interlocked rules — the primary IIR and the secondary UTPR. The Spanish Law also makes use of the option provided in the EU Pillar Two Directive to introduce a QDMTT.

The IIR and the QDMTT will be effective retroactively for fiscal years starting on or after 31 December 2023, while the UTPR will apply for Fiscal Years starting on or after 31 December 2024.

In line with the EU Pillar Two Directive, Spanish parent companies of an MNE or large-scale domestic group must pay an IIR top-up tax calculated according to their allocable share in every entity of the group that is resident in a low-tax jurisdiction (including itself), whether the entity is located within or outside the EU. If the entity has been subject to a qualifying QDMTT in its country of location, the amount of QDMTT paid will reduce the amount of the IIR top-up tax at the level of the Spanish Ultimate Parent Entity (UPE) or parent company.

QDMTT

The Global Minimum Tax Law implements a DMTT in Spain that is to be determined based on the accounting standard used for preparing and filing the consolidated financials of the UPE accounts.

The DMTT is calculated in line with the Model Rules and the EU Pillar Two Directive, including several provisions from the OECD Administrative Guidance on the QDMTT design such as not allowing Controlled Foreign Corporation tax downward attribution or "push down," the introduction of a QDMTT transition period and a separate calculation for constituent entities subject to special rules (e.g., joint ventures and minority owned constituent entities), so as to be regarded as "Qualified" for the purposes of the application of the QDMTT Permanent Safe Harbor.

Safe harbors

In line with the EU Pillar Two Directive, the Global Minimum Tax Law includes the safe harbor rules contained in the guidance released by the OECD/G20 Inclusive Framework on 15 December 2023.⁴

For fiscal years beginning on or before 31 December 2026, but ending before 1 July 2028 (i.e., the years 2024 to 2026 if the fiscal year equals the calendar year), a Transitional Safe Harbor that relies on Country-by-Country data as the basis for calculating an MNE's revenue and income on a jurisdictional basis is established. For a jurisdiction to qualify for the Transitional CbCR Safe Harbor, one of the three tests must be met: (1) revenue and income must be below the de minimis threshold; (2) the ETR must equal or exceed an agreed rate; or (3) no excess profits may remain after excluding routine profits (i.e. the amount of "substance-based income exclusion" is higher than the profit before taxes).

If one of the three tests is met, the top-up tax is set at zero; if the MNE group does not file an application for a fiscal year during the transitional period or does not meet the test in a fiscal year in a jurisdiction, the Transitional CbCR safe harbor will not be available for any subsequent fiscal years.

In addition, the Global Minimum Tax Law clarifies the interaction between the Transitional CbCR Safe Harbor and the transition rules for the first fiscal years of application of the Global anti-Base Erosion (GloBE) rules. In particular, the Global Minimum Tax Law states that the transitional period extends until the first fiscal year in which, for the corresponding jurisdiction, this Transitional CbCR safe harbor is not applicable.

The Global Minimum Tax Law also introduces a Permanent safe harbor rule that reduces the top-up tax to zero for a jurisdiction that has levied a QDMTT meeting certain conditions (the so-called Permanent QDMTT Safe Harbor).⁵

In addition, the Global Minimum Tax Law provides an exclusion for up to five years for MNE groups from QDMTT and UTPR during their initial phase of international activity. According to this provision, MNE groups will be exempt from minimum tax during this period, if (1) they have constituent entities in no more than six jurisdictions and (2) the net book value does not exceed €50m for the tangible assets of all of the MNE group's constituent entities located in all jurisdictions, other than the reference jurisdiction. There is a similar five-year exemption for large-scale domestic groups.

Administration and compliance

Spanish-based constituent entities to which the IIR, UTPR top-up tax and/or QDMTT tax are allocated in accordance with the provisions of the Global Minimum Tax Law must file a tax return stating and paying the amount of top-up tax. The return must be filed, and the tax paid, within the 25 calendar days following a 15-month period after the end of the fiscal year. However, the deadline for the first year is extended to 25 calendar days following a 18-month period after the last day of a transition year.

The Global Minimum Tax Law designates which Spanish entity acts as "substitute" for the taxpayer, meaning the Spanish entity will be responsible for filing the tax return and paying the tax, even though all Spanish-based constituent entities will be jointly liable for the tax.

Financial reporting implications

The Global Minimum Tax Law also includes an amendment of the Spanish General Accounting Plan to introduce the proposed International Tax Reform — Pillar Two Model Rules — Amendments to International Accounting Standard (IAS) 12 issued by the International Accounting Standards Board.

This amendment introduces a mandatory temporary exception to the accounting for deferred taxes arising from Pillar Two and require disclosures about an entity's exposure to income taxes arising from Pillar Two, including separate disclosure of its current tax expense (income) related to Pillar Two income taxes in periods when Pillar Two legislation is effective. The timing of these disclosure obligations in the Financial Statements will significantly precede the actual filing of the relevant tax returns with tax authorities, thus necessitating that in-scope groups prepare in advance for these financial reporting obligations. This should include undertaking a detailed assessment of the potential impact of Pillar Two to determine what disclosures will need to be made for full year or interim reporting as of 31 December 2024.

Global Minimum Tax Regulation

On 3 December 2024, the Spanish General Directorate of Taxes published for public consultation the Draft Royal Decree that will approve the Regulation of the Global Minimum Tax to ensure a global minimum level of taxation for large multinational and national groups ("Draft Regulation").⁶ The deadline for submitting comments on the text ended on 26 December 2024.

The Draft Regulation includes certain provisions from the Administrative Guides published by the OECD in February and July 2023, in addition to developing the declaration obligations of the Global Minimum Tax for the GloBE Information Return Guide published by the OECD in July 2023, such as the clarification on transferable tax credits and some specific aspects regarding the exclusion of income linked to economic substance. In this regard, the Draft Regulation is featured as an instrument for interpreting the Global Minimum Tax Law.

The Draft Regulation provides further references on the compliance obligations in connection with GloBE Information Return, generally in line with OECD standard. In addition, the Draft Regulation includes the simplified jurisdictional framework for the initial years of the GloBE rules as per the GloBE Information Return framework.⁷

Implications

The approval of the Global Minimum Tax Law introducing Pillar Two rules in Spain represents a significant milestone in the implementation of the OECD's Pillar Two global minimum tax solution. With the publication of the Global Minimum Tax Law, it is crucial for taxpayers to assess the potential impact of these new rules on their business structures and internal processes.

This development gives Spanish-based MNE Groups and foreign groups with presence in Spain a legal basis to move forward with their Pillar Two impact assessments and implementation projects to meet the new financial reporting and compliance obligations. The application of these measures is likely to result in higher cash tax disbursements for corporate taxpayers, which can in some cases be alleviated through the appropriate analysis of the rules. Groups with presence in Spain should consider performing an impact assessment and evaluation of mitigation strategies.