What is a Tax Group and what are the requirements for setting up a Tax Group between our companies?

The Tax Group can be used as a tool to reduce taxation, especially when one of our companies generates losses, but there are other reasons why it may be in our interest to form a “Tax Group”.

Generally, we will use this special regime with some kind of holding structure, although it is not essential, since, as we will see, a minimum percentage of ownership of one company in another is required. Let us begin by defining the Tax Group.

What is a Tax Group?

In this respect, the tax group is the application of the special regime of the same name, which is applied on a voluntary basis and is defined as such in the Corporate Income Tax Law and its Regulations.

The tax consolidation regime is configured as the result of the algebraic sum of the individual tax bases of the entities resident in Spain, adjusted by the eliminations and additions corresponding to intra-group transactions, i.e. the sum of the tax bases of all the companies in the tax group will be corrected by certain transactions that have been carried out between the companies that make up the tax group.

A typical tax group would be formed by the following companies:

Percentage requirements and voting rights

In order for two or more companies to form a tax group, the following conditions must be met:

1. That between them there is a direct or indirect shareholding of at least 75% of the shareholdings (70% for listed companies).
2. A majority of the voting rights of the entities included in the scope of consolidation must be held. This requirement must be met on the first day of the tax period and must be maintained throughout the tax period.
3. They must always be entities resident in Spanish territory, although resident entities indirectly controlled through non-residents or residents and subsidiaries of a non-resident may be included in the group. In the latter cases, it is compulsory to appoint a “representative entity” of the tax group, which will be the entity that meets the requirements and can represent the group and opt for the regime.
4. The application of the regime is optional, it does not apply automatically, once it has been requested it will apply indefinitely until its renunciation is requested again, which must be done within two months of the end of the last tax period.

Tax declarations

The tax group operates as a single entity, so any requirements or qualifications will be determined by the configuration of the tax group as a single entity. This means that each member company of the group will file a corporate tax return which ends when it reaches the taxable income box, and the parent/representative company will be responsible for grouping all the taxable income and completing the consolidated return, so that only this entity will apply adjustments and incentives, such as capitalisation and equalisation reserves, to its tax.

Therefore, the consolidated statements will refer to the same closing date and period as the annual accounts of the entity representing the tax group, and the rest of the entities forming part of the tax group must close their financial year on the date on which the entity representing the tax group closes its financial year.

The entities that make up the tax group are subject to the tax obligations deriving from the individual taxation system, except for the payment of the tax debt, which is concentrated in the representative entity.

The representative entity will file the tax return using form 220 and in electronic format, tax consolidation regime, the deadline being that which coincides with its tax period, i.e. 25 calendar days following the six months after the end of its tax period.

Other mandatory documentation and information

The entity representing the tax group must draw up, for tax purposes:

1. The balance sheet.
2. The profit and loss account.
3. A statement reflecting the changes in equity for the year.
4. A consolidated cash flow statement, applying the global integration method to all the companies that make up the tax group.

The following information shall be attached to the above documents:

1. Eliminations made in previous tax periods pending incorporation.
2. Eliminations made in the tax period, duly justified as to their origin and amount.
3. The additions made in the tax period, also justified as to their origin and amount.
4. The differences, duly explained, which may exist between the eliminations and additions made for the purpose of determining the taxable base of the tax group and those made for the purpose of preparing the documents to be drawn up by the representative entity for tax purposes.
5. The rest of the companies will be obliged to close their financial year on the same date as the representative entity.