Spain: Related Information
In order to attract the headquarters of foreign multinational companies the Government had traditionally accorded favorable treatment to entities known as "co-ordination centers" located in the Basque and Navarre regions of the country. Co-ordination centers are entities whose activities consist of the management, direction, supervision and centralization of transactions and services within an international group of companies.
NB: Spanish Co-ordination Centres were included on the list of 'Harmful Tax Practices' issued by the EU's Code of Conduct Committee; the scheme was subsequently closed. The remainder of this section deals with the situation as it existed prior to these changes, and the currency amounts are pre-eurozone entry.
Qualifying PreconditionsTo obtain co-ordination center status a company must have satisfied the following five criteria:
- To be part of a multinational group. At least 25% of the multinational group consolidated equity must relate to non-resident group members and at least 25% of the multinational group consolidated turnover must relate to the business operations of foreign group members. The consolidated equity of the multinational group must exceed 1250m ESP (US$8.1m) and the consolidated turnover must exceed 8,000m ESP (US$52m).
- To have equity exceeding 600m ESP (US$4m) and turnover exceeding 1,000m ESP (US$6.5m).
- To obtain co-ordination center status prior approval was required from the local tax administrator. The status was normally granted for a period of 5 years if the co-ordination center is to be located in the Basque area or 3 years if it is to be located in the Navarre area. The time period can be extended if necessary.
- The co-ordination center must employ a minimum of 8 employees.
Fiscal Advantages of Co-ordination Centres
Co-ordination centers enjoyed the following fiscal advantages:
- The corporate income tax assessment of co-ordination centers located in the Navarre and Basque regions is a flat levy of 25% of all the "operating expenses" incurred by the company from which formula and for the purposes of establishing the taxable base are excluded "financial expenses". Given that in Spain corporate income tax rate was at that time 35% of accounting profit this arrangement was a substantial concession and means that a company with co-ordination center status which has high business profits, high financial expenses but low business expenses (other than "financial expenses") will pay considerably less corporation tax than other Spanish corporate entities. (N.B. The co-ordination center has the option to be taxed according to normal fiscal rules applying to other corporate entities in Spain).