2015 has been another excellent year for the Spanish economy and for Spanish M&A, thus confirming the positive expectations anticipated in the last edition of The Mergers & Acquisitions Review.

In 2015 and the first half of 2016, Spain consolidated the recovery it began in mid-2013. The imbalances accumulated over the years have been substantially reduced, creating a more favourable environment and increasing Spanish companies’ (as well as Spain’s) access to capital markets. As a consequence, GDP grew by 3.2 per cent in 2015. Despite unfavourable political conditions, economic growth also remained strong in the first half of 2016 (with forecasts north of 3 per cent), backed by improved labour market prospects, less stringent financial conditions and renewed confidence, and also aided by favourable external developments. These factors are expected to foster growth in future years, further bolstered by generally positive labour market developments, improved access to credit for both firms and households, and heightened confidence, while low oil prices are set to continue as a powerful tailwind.

The very positive development of Spain’s economy has nevertheless been overshadowed by the inconclusive general elections held in December 2015 and the uncertainties about the formation of a new government after the recent elections on 26 June 2016. Other uncertainties affecting M&A activity include concerns about the global economy – particularly the economic situations of China and other emerging economies, in particular Brazil and other Latin-American countries, which are the traditional target of Spanish direct foreign investments – Brexit and its impact on the European project, and the US elections in November.

Despite these apprehensions, M&A activity in Spain has so far been very solid. Although M&A targeting Iberia in 2015 dropped in terms of volume from the preceding year (€40 billion2 versus €60 billion in 2014), the region saw the highest number of deals in 2015 since 2007 (440 deals versus 435 in 2014). The lower value may be partially due to Spain’s tightly contested elections, with Q4 2015 (€6.5 billion in around 110 deals) down compared to Q3 2015 (€14.5 billion in around 110 deals). Spain’s outlook for 2016–2017 remains strong, and we expect this to be reflected by a significant increase in deal announcements throughout the second half of 2016.

The main drivers of M&A activity continue to be as follows:

  • a Spanish targets have become attractive due to the significant improvement of the macroeconomic environment, the strengthening of their operations and balance sheets during the financial crisis, the depreciation of the euro and the availability of debt financing buttressed by low interest rates.
  • b Spanish corporates and financial institutions continue their deleveraging processes. The financial sector, in particular, has remained very active both in the number and volume of deals. Spanish banks and other financial institutions have sold non-core assets and branches (such as servicing platforms), divested performing and non-performing loan portfolios, and exited from industrial shareholdings.
  • c Real estate, energy, healthcare, IT and telecommunications have also attracted significant investments due to an increased consolidation in those industries and changes in the regulatory framework.
  • d Foreign strategic and financial investors remain focused on Spain and interested in both strategic and opportunistic investments. Europe is the main source of those investments, followed by the United States. The remarkable increase of Latin-American investments, mainly from Mexico and Chile, also continues.
  • e Outbound foreign investments have also increased, focusing Spanish investments mainly on Europe, the United States and Canada, and to a lesser extent on Latin America and Asia.
  • f Private equity activity, in particular, has returned to pre-crisis levels. Exits have also increased, and private equity sponsors continue under pressure to divest their holdings acquired before the financial crisis.
  • g Initial public offerings (IPOs) remained strong in the Spanish market.


i Corporate law

The basic Spanish legal framework for corporate acquisitions, mergers and other types of corporate restructuring includes elements of both contract and corporate law.

Spanish contract law is mainly contained in the Civil and Commercial Codes of the 19th century.

Seeking to modernise and update this legal framework, the General Codifying Commission has been working on a new Commercial Code since 2006 with the aim of codifying the entire body of law on commercial contracts into a single piece of legislation. The first draft was submitted for public consultation in June 2013, and the government approved the draft bill in May 2014. However, the draft bill has not yet been submitted to Parliament.

Spanish corporate law, on the other hand, is primarily based on the Companies Law and the Law on Corporate Restructuring.

The Companies Law governs, inter alia, the corporate aspects of the acquisition of joint-stock companies (sociedades anónimas) and limited liability companies (sociedades de responsabilidad limitada), the most common corporate form in Spain. It also sets out the basic legal framework for listed companies. The Law on Corporate Restructuring regulates corporate restructurings (i.e., mergers, spin-offs, conversions, en bloc transfers of assets and liabilities and international transfers of registered address). It also specifically regulates leveraged buyouts (LBOs) (i.e., mergers between companies where one has incurred debt during the three years preceding the acquisition of control – or the essential assets – of the target company). The law requires, inter alia, that an independent expert determine whether the LBO constitutes financial assistance, a circumstance the Companies Law generally prohibits. It does not, however, establish the effects of an independent expert’s finding of financial assistance – a situation creating uncertainty in LBOs, particularly due to Spanish company registries’ legal interpretations, which have unfortunately been less than consistent.3

The rules that must be taken into account in connection with the main regulated markets include the Consolidated Stock Market Law4 (framework for the securities market), the Law on Discipline and Intervention of Credit Institutions5 (framework for the credit market) and the Private Insurance Supervisory Law6 (framework for the insurance market).

ii Insolvency law

The general legal framework on insolvency is primarily contained in the Insolvency Law.

The Insolvency Law created a single insolvency procedure applicable to all insolvent debtors (i.e., a debtor who is, or will imminently be, unable to regularly comply in a timely manner with its payment obligations). The single procedure has a joint phase with two potential outcomes: a creditors’ agreement (in which the debtor and creditors reach an agreement on the payment of outstanding claims), or the liquidation of the debtor’s assets to satisfy its debts. It has also clarified the risks associated with the clawback (rescission) of transactions carried out within the two years preceding the declaration of insolvency that are considered detrimental to the debtor’s estate.

The Insolvency Law was generally viewed as a positive development. Nevertheless, the legislation was passed in a completely different economic and financial atmosphere, rendering it necessary to amend it in 2009, 2011, 2013, 2014 and 2015.

The most significant recent developments are Royal Decree-Law 1/2015 of 27 February – outlined in the previous edition of The Mergers & Acquisitions Review – and Law 9/2015 of 25 May. These reforms generally sought to improve various aspects of the pre-insolvency institutions to ensure the viability of companies in an attempt to avoid insolvency (inter alia, to introduce the ‘protective shields’ of refinancing agreements), and align the Insolvency Law with current practices and insolvency regulations in other comparable jurisdictions, as well as to eliminate specific rigidities and improve various technical aspects criticised by judges, legal scholars and lawyers alike.

No other major structural reforms have been required since. Indeed, insolvency proceedings have fallen sharply for a second consecutive year. According to recent statistics, the number of insolvency proceedings has continued the downward trend observed since the last quarter of 2013. The number of insolvency proceedings reported in 2015 (4,394) declined by 24.5 per cent on a year-over-year basis, while during the first quarter of 2016, the number dropped 28.6 per cent compared to the same period last year.

iii Other regulations

Other matters relating to, inter alia, tax, employment and competition law also form part of the M&A legal framework (see below).


i Overview

Royal Decree 977/2015 of 26 October dissolved the Parliament ahead of the general elections called for 20 December 2015. The failure to form a government after the elections resulted in Parliament being dissolved anew by virtue of Royal Decree 184/2016 of 3 May, which called new general elections for 26 June 2016, ending six months of fruitless talks aimed at forming a workable parliamentary majority. Throughout that period, legislative activity in Spain predictably declined.

Nevertheless, a range of significant legislative initiatives entered into force in the period immediately following the first dissolution of Parliament.

ii Consolidated Stock Market Law

In October 2015, Royal Legislative Decree 4/2015 of 23 October on the Consolidated Stock Market Law came into force.

This Royal Legislative Decree consolidated previously scattered legislation on securities markets into a single piece of legislation, renumbering titles, chapters and articles, but without introducing substantial changes. On the other hand, the Consolidated Stock Market Law sought to pave the way for imminent reforms, providing a more permeable structure to facilitate the transposition of EU law.

iii Recovery and resolution of credit institutions and investment firms

In June 2015, Law 11/2015 of 18 June on credit institutions’ recovery and resolution came into force.

The Credit Institutions’ Recovery and Resolution Law transposed Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014, establishing a framework for the recovery and resolution of credit institutions and investment firms. The legislation represents a response to the necessity of quick and efficient resolution procedures on non-viable credit institutions. The Law also establishes mechanisms to protect taxpayers from bearing losses resulting from a failed credit institution.

iv Developments on savings banks and banking foundations

In October 2015, Royal Decree 877/2015 of 2 October came into force.

Royal Decree 877/2015 contains legislative developments to the Savings Banks and Banking Foundations Law, approved by Law 26/2013 of 27 December. The Royal Decree created a series of obligations for banking foundations triggered by their ownership of stakes in banks and other credit institutions. Among other obligations, whenever the stake is equal to or higher than 50 per cent, or control exists over the relevant bank or credit institution, the banking foundation is obliged to either set up a reserve fund or divest from the credit institution. Royal Decree 877/2015, in turn, developed the method for calculating the minimum target amount of the reserve fund, the means of building it up, and the time frame in which its endowment must be completed.

Circular of the Bank of Spain 6/2015 of 17 November further developed the provisions of Royal Decree 877/2015.


i Transactions driven by strategic investors

The following are some of the most important inbound and outbound deals driven by strategic investors in the second half of 2015 and the first half of 2016:

  • a In June 2016, Spanish property companies Merlin and Metrovacesa agreed to merge, creating Spain’s largest real estate group by rental assets with a gross assets value of €9.3 billion.
  • b Also in June 2016, Siemens and Gamesa (a Basque Country-based global technological leader in the wind industry) signed a binding agreement to merge Siemens’ wind business with Gamesa to create a leading player in global wind power.
  • c In February 2016, ArcelorMittal (a Luxembourg-based steel and mining company) transferred a stake of approximately 35 per cent in Gestamp Automoción (a Spain-based automotive parts manufacturer) to the Ribera family for €885 million.
  • d In January 2016, Amadeus IT Group (a Spain-based provider of information technology solutions for the tourism and travel industry) agreed to acquire Navitaire (a US-based company that provides technology solutions to the airline industry) from Accenture for €742 million.
  • e In December 2015, Globe Specialty Metals acquired Grupo FerroAtlántica (a Spain-based manufacturer of silicon metal, silicon alloys and ferroalloys) from Grupo Villar Mir for €1.7 billion.
  • f In July 2015, former Qatari Prime Minister, Sheikh Hamad bin Jassim bin Jabr al-Thani, acquired a 10 per cent stake in the Spanish department store El Corte Inglés for €1 billion.
ii Transactions driven by private equity and other funds

Spain experienced a strong first quarter in 2016, with increased investments through private equity compared to the same period in 2015. The following are some of the most important deals in the second half of 2015 and the first quarter of 2016:

  • a In March 2016, Advent International Corporation (a US-based global private equity firm) agreed to sell Tinsa (a Spain-based provider of property valuation, analysis and real estate advisory services) to Cinven.
  • b In February 2016, Oaktree Capital Management (a listed, US-based private equity firm) acquired a 70 per cent stake of the Spanish renewables developer Eolia Renovables for €919 million.
  • c In February 2016, KKR (a US-based private equity firm) acquired an 80 per cent stake in Gestamp Asetym Solar (a premier global solar developer and operator) from Gestamp Renewables for €738 million.
  • d In November 2015, Euskaltel (a cable operator based in the Basque Country) closed the acquisition of R Cable (a leading regional operator in Galicia) from the private equity group CVC Capital Partners for €1.19 billion.
  • e In September 2015, Ardian (a France-based private equity firm) acquired a 10 per cent stake in Compañía Logística de Hidrocarburos (a listed, Spain-based company headquartered in Madrid that provides logistic services) from Repsol for €325 million.
  • f In July 2015, PAI Partners (a France-based private equity firm) agreed to acquire Geriatros (a Spain-based company that manages retirement homes and day centres) from Magnum Capital Industrial Partners for an estimated consideration of €300 million.


i Public M&A

In the current scenario of economic growth, the restructuring of the Spanish financial sector has continued influencing the Spanish public M&A market on two main fronts: the sale of non-core assets and the sale of stock.

Spanish multinational companies are selling non-strategic assets to alleviate debt burdens, meet creditors’ demands, preserve investment-grade ratings and secure access to fresh financing to expand into other geographic markets. Competitive processes for the sale of non-performing loan portfolios and real estate owned portfolios also continued during 2015.

This environment has attracted the interest of international investors: in 2015, foreign investors invested €23 billion in Spain (an increase of more than 10 per cent with respect to the preceding year). Some of the main transactions of this type included the sale by Acciona (a listed, Spain-based company engaged in the development and management of infrastructure, renewable energy, water and services) of its subsidiary Corporación Acciona Windpower to Nordex, and the simultaneous purchase of shares giving Acciona a 29.9 per cent strategic stake in Nordex for €785 million; the acquisition by Globe Specialty Metals of Grupo FerroAtlántica (a producer of silicon metal, silicon alloys and ferroalloys) from Grupo Villar Mir for €1.7 billion; and the acquisition by Gas Natural Fenosa (a listed, Spain-based company dedicated to the supply, commercialisation and distribution of natural gas and electricity) of Gecal Renovables from Springwater (a US-based investment holding company) for a total consideration of €260 million. George Soros continued investing in Spain through the acquisition of a 7 per cent stake in Banco Santander for €500 million. Caixabank sold a portfolio of non-performing loans to Blackstone in July 2015 for €800 million. Following this transaction, Caixabank continued its strategy of divesting non-performing loans by selling a portfolio to TPG for €800 million in December 2015.

Takeovers have once again become an attractive alternative for large transactions and for the most valuable assets. Caixabank launched a voluntary takeover offer for Banco BPI (a listed, Portugal-based commercial bank), and Ferrovial (a Madrid-listed infrastructure company) made a takeover offer to acquire Broadspectrum (a listed, Australia-based infrastructure development contractor).

ii Real estate

As mentioned in previous editions of The Mergers & Acquisitions Review, real estate has re-emerged as one of the prominent fields of M&A activity after years of market corrections. Attractive prices combined with banks’ need to clear their balance sheets of real estate assets (foreclosures in the wake of the housing bubble converted the banking sector into one of the main real estate owners) have catalysed the resurgence of real estate transactions in the Spanish market. To foster this resurgence, the government made the tax framework applicable to the Spanish SOCIMIs (similar to real estate investment trusts) more attractive.

Investor appetite made 2015 a record year, with transactions in the property sector reaching €12 billion. Almost 40 deals were signed during Q1 2016, including the following of note:

  • a the acquisition of a portfolio of hypermarkets belonging to Eroski by the fund Invesco for €358 million;
  • b the sale of the Hotel Villamagna in Madrid to the Istanbul-based Dogus Group for €180 million;
  • c the acquisition by GreenOak’s Spain-focused fund of 320,000m2 of real estate assets leading to €700 million in investment capacity for Spain; and
  • d Blackstone’s acquisition of a portfolio of 4,500 residential units from Banco Sabadell.

The autonomous regions of Madrid and Catalonia remained the regions with the highest levels of activity, with investments of €6 billion and €2 billion, respectively.

iii IPOs

IPOs remained strong in the Spanish market, both on the traditional continuous market and on the Mercado Alternativo Bursátil, a market (with a special set of regulations) for small companies seeking expansion.

Several companies have undergone an IPO in Spanish capital markets in recent months. Among others, Euskaltel, Telepizza Group (the largest, non-US pizza carryout chain in the world), Dominion (a global provider of engineering solutions), Parques Reunidos (a leading global operator of regional leisure parks) and Coca-Cola European Partners (the world’s largest independent Coca-Cola bottler, based on net revenues) went public. In addition, Aernnova (an aerostructures company providing market engineering services) is reportedly preparing to float on the stock market shortly.

Several Spanish real estate companies have launched successful IPOs in Spanish capital markets this year, including Corpfin, Uro Property, Fidere, Trajano, Zaragoza Properties and Zambal. Most of these newcomers have been incorporated under the recently reformed SOCIMI framework.

iv Private equity

Deal activity in 2015 failed to continue in the same vein as in 2014. In terms of value, the data available for 2015 suggests aggregate investments of €3 billion (a decrease of more than 10 per cent compared to 2014). Although this figure remains far off the historic high deal value reached in 2007 (€4.3 billion), it is nevertheless 13 per cent higher than in 2013 (€2.62 billion).

In terms of volume, the second half of 2015 was the most active period, with an almost 200 per cent increase compared to the first half of that year. Unlike 2014, which saw extensive buyouts, there were only five investments in 2015 whose equity value exceeded €100 million. Domestic sponsors have played a very active role after solid fundraising efforts, in contrast to more cagey foreign players.

Energy, telecommunications and mining were the sectors most sought-after by investors. For example, Cerberus Capital Management (a US-based private equity and venture capital firm) acquired Renovalia Energy (a Spain-based renewable energy company that promotes, engineers, constructs, produces and sells electricity), Zegona Communications acquired Telecable de Asturias from The Carlyle Group and Liberbank, and Mubadala (a wholly-owned investment vehicle of the government of Abu Dhabi) acquired a 50 per cent stake in Minas de Aguas Teñidas as part of the joint venture agreement with Trafigura.

Turning to divestments, CVC Capital Partners was particularly active in 2015, selling its remaining 6.3 per cent stake in Abertis and its interest in R Cable to Euskaltel.


i General overview

In 2015, the acquisition finance market recovered after the financial crisis of recent years. Bank liquidity improved, and traditional lenders that were dominant prior to the crisis and that overcame the restructuring of the financial sector (e.g., BBVA, Caixabank, Sabadell, Banco Santander) are once again focused on lending activity with a positive but prudent approach. Fortunately, the recent political atmosphere has not had a negative impact on lenders’ capacity to provide financing. Market estimates suggest that corporate and business loans from Spanish financing entities will increase during the second half of 2016, and that the availability of funds from Spanish banks (especially for non-investment grade borrowers) will continue to improve.

Competition between traditional Spanish lenders and direct lending funds was stronger than during 2014, since borrowers actively looked for more flexible ways of financing. Private equity funds have taken advantage of investment opportunities and continued low prices. Shadow banking has increased in the Spanish market, and traditional private equity players have started new investment activities, including direct lending. During the first quarter of 2016, private equity funds maintained their interest in Spain, but nevertheless seem to have postponed investment decisions marginally in order to have a clearer view of what the ultimate outcome will be of the government’s composition.

Debt issuance of Spanish companies in the flexible and liquid Anglo-Saxon markets were consolidated during 2015 and the first quarter 2016, most notably by real estate companies, which used to be a sector fully financed by traditional lenders. Specific Spanish companies (including financial entities) have also used the Spanish market for their debt issuances, some of a considerable volume.

Competition has forced Spanish banks to offer higher leverage, lower pricing and more flexible structures. Borrowers can now resort to mezzanine, unitranche, second lien, high yield and a variety of combinations of any of these products to finance their deals.

ii Financing conditions

Apart from these general trends, the following are the main features of acquisition financings in 2015:

  • a The range of financing products available to borrowers is exceptionally broad: second-lien facilities, ancillary facilities, mezzanine, bridge-to-equity facilities, bridge-to-bonds and equity-like facilities are being offered by Spanish banks due to stronger competition. Vendor loans and non-banking loans (e.g., those originating from hedge funds) continue to be frequently used to finance acquisitions.
  • b Banks still refrain from agreeing to the ‘certainty of funds’ provision in commitment letters, whereas the inclusion of material adverse change clauses and ‘diligence out’ provisions continue to be essential. Limits to changes in pricing that can be arranged without the borrower’s consent have widened under the ‘market flex’ provisions, and ‘reverse flex’ provisions have not returned. Facility agreements still include broadly drafted ‘market disruption’ clauses.
  • c Traditional lenders have made efforts to adapt covenants related to the disposal of assets, corporate restructuring transactions and guarantee thresholds provided by the borrower’s group to covenants customarily used in high-yield bonds transactions to offer more flexible financing that does not restrict the borrower’s capacity to take business decisions if the financial ratios are not breached.


As anticipated in last year’s edition of The Mergers & Acquisitions Review, the Companies Law was amended in December 2014 to improve corporate governance.

Under recent amendments, when a board member is appointed as managing director or otherwise acts as an executive director, the corresponding duties must be regulated in a written contract. The contract must be approved by the company’s board of directors (without the involvement or vote of the relevant director) and attached to the minutes of the board’s resolution approving it. The contract also has to include all the terms and conditions under which the services are provided, especially all items paid as consideration for the services (e.g., full remuneration package, benefits and severance payments, non-compete covenants, pension undertakings). The director will not be allowed to receive any payment not expressly established in the contract.

From a labour law perspective, these amendments resulted in a significant amount of work in the previous year, work primarily linked to due diligence reviews and post-closing actions in M&A deals. Spanish companies sometimes set up simultaneous corporate and labour relationships with their management teams, which must be carefully assessed from a labour law perspective.

It has become increasingly important in due diligence exercises to identify board members who also provide executive services. In fact, identifying these individuals and reviewing their contracts has become of the utmost importance since many companies fail to fully comply with these regulations. Flagging these issues in time is therefore key to making the necessary corrections and properly allocating responsibilities between the parties to the transaction.

The issues linked to these regulations are relatively simple to correct from a legal perspective, since the board only needs to ratify the individuals’ contracts. However, difficulties may arise if it becomes necessary to open negotiations with the directors or senior employees because no prior contract existed, the contract is not recent or amendments need to be made to comply with the Companies Law. In any case, timely identification of the situation has proven crucial. The framework of a corporate or M&A transaction sometimes offers an effective opportunity to tackle these situations.


Law 27/2014 of 27 November on Corporate Income Tax (New CIT Law) and Law 26/2014 of 27 November, which modifies the Personal Income Tax Law and the Non-Resident Income Tax7 (Law 26/2014), which generally came into force on 1 January 2015, included a significant set of amendments to Spanish tax regulations. The most relevant novelties for the M&A practice were the following:

i Definition of business activity for CIT purposes

The New CIT Law established a definition of ‘business activity’ for CIT purposes. According to the wording of the New CIT Law, a business activity exists for CIT purposes when there are sufficient human and material resources to carry out the corresponding business activity at the level of the group of companies of which the corresponding company forms part. This change may impact the tax structure of typical acquisition deals.

ii Non-deductibility of impairments

Impairments of company shares due to the depreciation of real estate assets are no longer tax deductible.

iii Deductibility of financial expenses

Interest accrued on intragroup profit participating loans (PPLs) are treated as dividends for CIT purposes for the lender and, consequently, expenses derived from PPLs (when granted to related entities) will no longer be deductible by the borrower for CIT purposes. This measure affects PPLs signed after 20 July 2014.

The New CIT Law modified the treatment of hybrid instruments to tackle hybrid mismatches, stating that the expenses incurred in related-party transactions will not be tax deductible if, as a result of a different tax characterisation in the country of residence of the recipient, no income is generated or income is tax-exempt or subject to a nominal rate lower than 10 per cent.

The New CIT Law maintains the general limitation on the tax deductibility of net financial expenses (30 per cent of operating profit) with the minimum deductibility threshold of €1 million.

An additional limitation on leveraged acquisitions was introduced: financial expenses derived from the acquisition of companies that join the CIT tax group after its acquisition or are subject to reorganisation transactions in the subsequent four years will be deductible from the buyer’s tax base up to the additional limit of 30 per cent of the operating profit of the acquiring company. This restriction seeks to avoid financial expenses payable by the acquiring company being compensated at a group level through the creation of a tax group or a merged entity; however, this limit does not apply if the portion of the purchase price financed with debt does not exceed 70 per cent of the total purchase price and, in the following eight tax years, the debt is reduced annually by one-eighth of the principal amount until the principal amount is reduced to 30 per cent of the initial purchase price. This limitation does not apply to acquisitions in which the target entities joined the CIT group in tax periods commencing before 20 January 2014, or if the merger took place after 20 June 2014 but the entities already formed part of a tax group.

iv Transfer pricing rules

The New CIT Law modifies the definition of a related party between parent and subsidiary entities, as the relevant shareholder’s stake needs to be at least 25 per cent or, if decision-making power is, or can be, exercised (the threshold before the entry into force of the New CIT Law was 5 per cent).

Although all companies must comply with transfer pricing documentation requirements, the New CIT Law simplifies the documentation requirements for groups with net turnover under €45 million.

The penalties for non-compliance with the transfer pricing legislation have been reduced.

v Participation exemption framework

Prior to the New CIT Law, the Spanish participation exemption framework was applicable to dividends derived from both resident and non-resident Spanish companies (although subject to different requirements) as well as to capital gains derived from non-resident Spanish companies. The New CIT Law has maintained the application of the participation exemption to dividends from both resident and non-resident Spanish companies, although the new legislation extended its scope of application to include capital gains derived from Spanish resident companies. This essentially implies that, subject to further analysis on a case-by-case basis, capital gains realised on the sale of a Spanish company by its Spanish parent company may be exempt, provided that minimum ownership of 5 per cent or cost of acquisition of at least €20 million is held during the year preceding the date on which the transfer is completed or, in the case of dividends, it has been maintained for the time required to complete that period; additionally, if a foreign subsidiary is involved, the subsidiary must be subject to a minimum level of nominal taxation of 10 per cent in its home country.

The amendments to the participation exemption framework have also been introduced for the branch participation exemption. A minimum level of nominal taxation of 10 per cent under a foreign corporate tax system similar to the Spanish CIT is required. This requirement is considered to be met if the branch is resident in a country with which Spain has ratified a tax treaty for the avoidance of double taxation.

vi Capitalisation reserve

The New CIT Law replaces most of the tax credits currently in force (such as the reinvestment tax credit and the environmental investment credit) with a tax-deductible capitalisation reserve under which Spanish entities may, under certain circumstances, reduce their taxable base by 10 per cent of the increase in its net equity during the year. This is done by comparing the net equity at year-end (excluding the current year’s profits) with the net equity at the beginning of the year (excluding the previous year’s profits) and excluding any shareholder contributions and other items.

To be eligible to benefit from this tax relief, the amount of the net equity increase must be maintained for five years following the application of the tax deduction (except for accounting losses), and the company must report an accounting reserve in its annual accounts for the amount of the deduction. The capitalisation reserve cannot be distributed during the following five years, except in certain situations.

vii Carry forward losses

According to the New CIT Law, from 2017 onwards, offsetting the accumulated tax losses is limited to 70 per cent of taxable income (60 per cent for tax years commencing within calendar year 2016).

This limitation does not apply in the tax year in which the company is dissolved (except if derived from a restructuring transaction) or to specific types of income, such as that derived from debt cancellations without consideration when the creditor is not a related entity.

Despite introducing this limit to the offsetting of carry forward losses, the New CIT Law removes the applicable 18-year limitation, allowing tax losses to be offset indefinitely.

viii Tax rate reduction

The New CIT Law gradually reduces the CIT rate from 30 to 25 per cent in 2016. Moreover, a reduced 15 per cent tax rate is established for newly created companies that carry out business activities. The rate applies during the first profitable tax year and the following year.

ix CIT group framework

Based on the ruling of the European Court of Justice of 12 June 2014,8 the New CIT Law, which came into force for tax years commencing on or after 1 January 2015, broadens the scope of companies eligible for the CIT group framework. Under the new framework applicable to CIT groups, all Spanish companies resident in Spain and permanent establishments of foreign-resident entities in Spain that have a direct or indirect common non-resident shareholder (insofar as the common shareholder meets specific requirements) may form a tax group for Spanish CIT purposes. In that circumstance, the common non-resident shareholder is considered the parent company of the CIT group, although it must appoint one of its subsidiaries as the group’s tax representative in relation to the Spanish tax authorities.

x Tax neutrality framework for mergers and demergers

The main amendments introduced by this framework are the following.

Unlike the previous regulation, the tax neutrality framework is considered the framework applicable to mergers and demergers by default. A decision to not apply the tax neutrality framework must be communicated to the Spanish tax authorities.

The New CIT Law extends the scope of the definition of partial demergers entitled to benefit from tax neutrality given that maintaining another business unit in the transferring entity is no longer required (i.e., the New CIT Law allows the application of tax neutrality when the transferring entity merely retains a controlling stake in a subsidiary).

In addition, the New CIT Law allows transferring carry forward losses to the acquiring entity simultaneously with the going concern being transferred to the acquiring entity even if the transferring entity is not wound up.

Merger goodwill and other intangibles arising as a consequence of the merger will not be recognised for tax purposes and will therefore no longer be deductible. However, merger goodwill and asset step-ups will be permitted if the acquisition of the absorbed entity was executed before 1 January 2015.

According to the current wording of the New CIT Law, the tax authorities will only be able to partly regularise a tax advantage unduly applied. The tax authorities will not be able to claim taxes on unrealised gains by the transferring entity.

xi Non-resident income tax

Law 26/2014 reduces tax rates on income obtained by non-residents in Spain. The general tax rate is cut to 24 per cent; the rate for EU residents is 19 per cent. Moreover, dividends, interest and capital gains are taxable at a rate of 19 per cent. The tax rate for permanent establishments is reduced to 25 per cent from 2016 onwards.

The most important development in relation to the EU Parent–Subsidiary Directive is that no Spanish withholding taxes are levied on dividends distributed by a Spanish subsidiary to its EU parent company when the EU parent company maintains a direct holding of at least a 5 per cent stake or €20 million in the Spanish subsidiary. The holding must have been held uninterruptedly for the year preceding the date on which the distributed profit is due or, failing that, for the time required to complete that period. The anti-avoidance rule has also been amended, and will apply when the majority of the parent company’s voting rights are directly or indirectly held by non-EU residents, unless it can be evidenced that the EU parent company has been incorporated and operated for valid economic purposes and substantial business reasons.


Under Law 15/2007 of 3 July on competition, transactions leading to a concentration that fulfil the following thresholds are subject to mandatory notification to Spain’s National Markets and Competition Commission (NMCC):

  • a As a consequence of the transaction, the undertakings obtain a market share of at least 30 per cent in a national market or a substantial part of it regarding a certain product or service. The market-share threshold increases to 50 per cent if the target’s aggregate turnover in Spain was less than €10 million in the previous financial year.
  • b The turnover of the undertakings in Spain in the previous financial year was at least €240 million, provided that at least two of the undertakings concerned had a minimum turnover of €60 million in Spain during the same period.

The Competition Law also includes a suspension obligation, requiring that the completion of a transaction meeting any of the thresholds be suspended until clearance is granted.

The creation of the NMCC in 2013 resulted in the unification, in a single regulatory body, of the functions of the former National Competition Commission and the regulators of the energy, telecommunications, media, post, railway and air transport and gambling sectors. This institutional change has not increased waiting times for merger control proceedings.

From 2014 to 2015, the number of notifications filed increased by 10 per cent. The most prolific areas included the manufacturing sector, the financial and insurance sector, the healthcare industry (including medical devices, drugs, etc.), the chemicals industry and the information society services sector.

In terms of antitrust enforcement policy, in 2015 the NMCC continued to closely monitor companies’ compliance with its decisions through a specialised division within the Competition Directorate to conduct such investigations. Within these proceedings, information requests are usually submitted to third parties enquiring about companies’ compliance with the conditions imposed.

As regards merger control, in 2015 the NMCC imposed fines (up to €3 million) on two companies for infringing the conditions imposed on mergers. These merger control enforcement activities also resulted in 10 investigations in 2015 regarding potential gun-jumping cases. The NMCC ultimately opened formal proceedings and imposed fines in two of those cases, both of which involved a notification obligation triggered by meeting the market share threshold established under the Competition Law.


Despite the political uncertainties in Spain and turmoil in the global economy, M&A prospects in Spain for the second half of 2016 and for 2017 are optimistic. The sustained improvement of the Spanish economy, the continued deleveraging process, the consolidation of key industries (telecommunications, energy, financial services), and the increased access to credit and other financing for Spanish corporations and private equity, strengthen the belief that the volume and number of M&A transactions will be maintained in the short and medium term. On the negative side, high unemployment continues to dampen consumer spending (although domestic demand has inched up), the government continues to struggle with a large deficit and political instability may delay the upward trend.

Spanish banks will continue divesting their non-core assets, such as their stakes in industrial companies, and Spanish banks currently controlled by the state will be sold to the private sector.

The growing appetite of foreign investors for the Spanish economy, as well the global improvement of the economy and the high activity of M&A transactions worldwide will continue to affect the high number of transactions involving foreign investors in Spain. European and US investors will continue to be the main players.

Finally, foreign private equity funds continue to focus on Spain (although they consider the market to be over-heating), and to seek opportunities in the financial, real estate and telecommunications sectors. Other foreign and Spanish funds will be forced or tempted to divest from their past investment.


1 Christian Hoedl and Javier Ruiz-Cámara are partners in Uría Menéndez.

2 All amounts are approximate.

3 Translations (into English and French) of these laws are available on the Spanish Ministry of Justice website: www.mjusticia.gob.es.

4 The securities market is supervised by the National Stock Exchange Commission.

5 The credit market is supervised by the Bank of Spain.

6 The insurance market is supervised by the General Insurances and Pension Funds Directorate.

7 Royal-Decree 5/2004 of 5 March approving the Revised Non-Resident Income Tax Law.

8 Cases C-39/13, C-40/13 and C-41/13.