In recent years, we have seen an increase in complexity and sophistication in the Spanish M&A market caused by the emergence of new players, as well as new and more varied financing formulas and deal structures. The year 2017 has been another excellent one for the Spanish economy and Spanish M&A, thus confirming the positive expectations anticipated in the last edition of The Mergers & Acquisitions Review.

In 2017 and the first half of 2018, 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, gross domestic product grew by 3.1 per cent in 2017. High liquidity in the debt and capital markets, increased investment capacity of private equities and funds, the success of fundraising and the strategic push of big corporations compensated the macroeconomic uncertainties. Despite certain unfavourable political conditions, economic growth also remained strong in the first half of 2018 (with forecasts in the region of 2.8 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.

The very positive development of the economy has nevertheless been overshadowed by the Catalan crisis (which has resulted in a short-term negative impact on the economy of this region) and by the uncertainties about the future of the public pension system. Other uncertainties affecting M&A activity include concerns about the global economy – especially the economic situations of the emerging economies and, in particular, the situation of South American countries, which are the traditional target of Spanish direct foreign investment – those related to Brexit's final outcome and its impact on the European project, and the tense trade relations of Europe and China with the United States.

Despite these apprehensions, M&A activity in Spain has so far been very solid. M&A targeting Iberia in 2017 increased considerably in terms of volume from the preceding year (an approximate increase of €78 billion from 2016). In 2017, Spain has been the leading country in the eurozone and the fourth in the world in the ranking measuring the volume of the operations of M&A activity. The number of deals in 2017 was also higher than it was in 2016 (1,214 deals in 2017 versus 1,145 in 2016). Despite the fact that, during the first quarter of 2018, there has been a relative deceleration in M&A activity, with a fall of 19 per cent in the number of transactions and 33.9 per cent in the amount compared to the same period in 2017, Spain's outlook for 2018 and 2019 remains strong, and we expect this to result in a significant increase in deal announcements throughout the second half of 2018.

The main drivers of M&A activity continue to be the following:

  1. Spanish targets have become attractive as a result of the strengthening of their operations and balance sheets, the significant improvement of the macroeconomic environment and the availability of debt financing buttressed by low interest rates.
  2. Spanish corporate and financial institutions are completing their deleveraging processes. The financial sector, in particular, has remained very active both in terms of the number and volume of deals, in some cases exceeding pre-crisis levels. Spanish banks and other financial institutions have continued selling non-core assets and branches (such as servicing platforms), divested performing and non-performing loan portfolios, and exited from industrial shareholdings.
  3. Real estate, energy, healthcare, tourism, IT and telecommunications have also attracted significant investments due to an increased consolidation in those industries and changes in the regulatory framework. In 2017, real estate was particularly relevant due to the progressive increase of prices over recent years. In this context, a growing number of M&A transactions in Spain have been made by means of auction processes, with important bids on energy and infrastructure assets.
  4. 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 investment, mainly from Mexico and Chile, also continues.
  5. Despite the decrease in private equity activity in 2017 worldwide, Europe (and particularly Spain) has witnessed an increase in private equity transactions in comparison to 2016. Indeed, private equity investments have returned to pre-crisis levels, and exits have also increased as private equity sponsors continue to be under pressure to divest their holdings acquired before the financial crisis.
  6. Outbound foreign investment has also increased, focusing Spanish investment mainly on Europe, the United States and Canada, and to a lesser extent on Latin America and Asia.
  7. Initial public offerings (IPOs) remained strong in the Spanish market.


i Corporate law

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

Contract law is mainly contained in the Civil and Commercial Codes of the 19th century. Seeking to modernise and update this legal framework, the Ministry of Justice worked on a new Commercial Code 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.

Corporate law is primarily based on the Companies Law and the Law on Corporate Reorganisation.2 The Companies Law governs, inter alia, joint-stock companies (sociedades anónimas) and limited liability companies (sociedades de responsabilidad limitada), the most common corporate forms in Spain. It also sets out the basic legal framework for listed companies.

The Law on Corporate Reorganisation regulates mergers, spin-offs, conversions, en bloc transfers of assets and liabilities, and international transfers of registered address. It also specifically regulates mergers following a leveraged buyout (LBO) (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 determines 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 legal interpretations by the Spanish commercial registries.

The rules that must be taken into account in connection with the main regulated markets include the Consolidated Stock Market Law3 (framework for the securities market), the Law on Discipline and Intervention of Credit Institutions4 (framework for the credit market) and the Private Insurance Supervisory Law5 (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 climate, rendering it necessary to amend it in 2009, 2011, 2013, 2014 and 2015.

The most significant recent developments were Royal Decree-Law 1/2015 of 27 February 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.

According to recent statistics, the number of insolvency proceedings has continued the downward trend observed since 2013. The number of insolvency proceedings reported in 2017 decreased with respect to 2016.

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).


There has been parliamentary deadlock in recent years because of the difficulty in obtaining majorities in Parliament, resulting in reduced legislative activity in terms of corporate and takeover law.

In October 2017, the government urgently amended Article 285.2 of the Companies Law to make it possible for boards of directors to move their registered offices within Spain without requiring the consent of shareholders. This measure has proved to be instrumental in avoiding the uncertainty produced by Catalonia's political crisis.

It is also foreseen that, during 2018, a new regulation of the commercial registry will be approved (the current regulation dates from 1996) in order to modernise its mechanisms and organisation, and to adapt this legislation to the current corporate legal regime.

Apart from these legislative developments, the most recent regulations, which were further analysed in previous editions of The Mergers & Acquisitions Review, were the following: Royal Legislative Decree 4/2015 of 23 October on the Consolidated Stock Market Law; Law 11/2015 of 18 June on credit institutions' recovery and resolution; and Royal Decree 877/2015 of 2 October on legislative developments to the Savings Banks and Banking Foundations Law and Circular of the Bank of Spain 6/2015 of 17 November (which further developed the provisions of Royal Decree 877/2015).

Finally, albeit not having an ad hoc regulation under Spanish law, during 2017 we have witnessed a progressive increase in the use of formulas aimed at minimising the risks assumed by the parties in M&A deals. From these formulas, note the increasingly important role of warranty and indemnity (W&I) insurance, which covers the losses arising from representations and warranties included in the sale and purchase agreements.


In 2017, we saw an increase in the interest of international investors in the Spanish real estate, energy, tourism, IT, telecom and healthcare sectors. Although M&A activity by strategic buyers experienced a certain slowdown in the first quarter of 2018, private equity investments continued to grow, and the outlook for 2018 both for inbound and outbound M&A remains strong. The following are some of the most important deals:

  1. In May 2018, Atlantia and Hochtief announced their agreement to invest in Abertis for €31 billion (combining their initially independent takeover offers launched a year earlier).
  2. In March 2018, Allianz Capital Partners GmbH and Canada Pension Plan Investment Board agreed to acquire a 20 per cent stake in Gas Natural Fenosa for €1.5 billion.
  3. In January 2018, Inmobiliaria Colonial, through a takeover offer for Axiare's shares, increased its stake to 87 per cent (it already owned 28.8 per cent) of the shares for €1.03 billion. The two companies are expected to merge during 2018.
  4. In 2017, Siemens concluded the merger of its wind power business with Gamesa Corporación Tecnológica.
  5. In November 2017, IFM acquired OHL Concesiones (a Spain-based company that provides all types of transport infrastructures) for €2.8 billion.
  6. In November 2017, Cerberus acquired an 80 per cent stake in the real estate business of BBVA for €4 billion.
  7. In November 2017, Santander sold Allfunds Bank to Hellman & Friedman and GIC Private Limited for €1.8 billion.
  8. In August 2017, Blackstone acquired 51 per cent of Banco Popular's real estate portfolio for €5.1 billion.
  9. In July 2017, a consortium consisting of JP Morgan Asset Management, the US-based asset management company, Abu Dhabi Investment Council, the UAE-based investment arm of the government of Abu Dhabi, Swiss Life Asset Management AG, the Switzerland-based asset management company and Covalis Capital LLP, the UK-based investment management firm, acquired Naturgas Energia Distribucion, SAU, the Spain-based gas distribution company, from Energias de Portugal SA, the listed Portugal-based company engaged in the generation and distribution of electricity, for an enterprise value of €2.59 billion.


i Public M&A

We have seen big deals in public M&A, with increased activity and large deals taking place within the infrastructure and energy sectors such as the Abertis takeover bids, the sale of Empark to Macquarie Infrastructure, and the OHL and Naturgas deals. Spanish M&A activity was dominated by Hochtief and Atlantia's pursuit of Abertis.

The current environment has attracted the interest of international investors in public M&A deals, and real estate, construction and infrastructure, and energy make up most public mega-deals:

  1. In 2018, the €2.5 billion takeover offer for 83.44 per cent of Spain-based and listed real estate company Hispania Activos Inmobiliarios SOCIMI, SA by Blackstone, the US-based private equity group, as well as the takeover offer received by Saeta Yield (the Spain-based and listed renewable energy company) from TerraForm Power, backed by Brookfield Asset Management, the Canada-based and listed alternative asset manager.
  2. In 2017, the largest public M&A deals were:
    • The takeover bids from Atlantia and Spanish ACS (through Hochtief), respectively, for Abertis, which as mentioned above finally ended in 2018 with Atlantia's and Hochtief's joint investment for €31 billion.
    • The Australia-based fund management firm IFM Investors' €2.7 billion acquisition of OHL Concesiones, SA from Obrascon Huarte Lain, SA, a listed Spain-based company engaged in concession and construction businesses (the deal closed in 2018); and
    • The €1.2 billion sale of Elektro Redes SA by Iberdrola (a Spain-based listed company engaged in the generation, transmission, distribution and marketing of electricity and natural gas) to Brazilian Neoenergia, SA (a subsidiary of Banco do Brasil, SA, Caixa de Previdencia dos Funcionarios do Banco do Brasil and Iberdrola, SA).

On a separate note, the symbolic purchase price paid for the shares and capital instruments of Banco Popular by Banco Santander was €1. This is the first acquisition under the single resolution mechanism approved by the Single Resolution Board.

ii Real estate

As mentioned in previous editions of The Mergers & Acquisitions Review, real estate has re-emerged as one of the prominent fields after years of market corrections. Attractive prices combined with banks' need to clear their balance sheets of real estate assets 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 2017 a good year in quantitative terms, with transactions in the property sector over €10 billion, including the following:

  1. The acquisition of an 80 per cent stake in the real estate business of Banco Bilbao Vizcaya Argentaria SA by Cerberus Capital Management, LP for €4 billion.
  2. The acquisition by Blackstone of 100 per cent of HI Partners Holdco Value Added from Banco Sabadell.
  3. Inmobiliaria Colonial SA's acquisition of a certain percentage of Axiare's shares to increase its stake in the company for €1.03 billion, with the intention of merging in 2018.
  4. The acquisition by Banco Popular Español, SA of a 51 per cent stake in Aliseda, Servicios de Gestión Inmobiliaria, SL (a Spain-based company engaged in promoting, managing and operating real estate properties) from Kennedy-Wilson and Varde Partners, Inc for €490 million.

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 to expand.

The Spanish Stock Exchange became the eurozone leader in numbers of IPOs in 2017. The IPOs of Gestamp (a company engaged in the design, development and manufacture of metal parts for the automotive industry), Prosegur Cash (a leading global provider of cash in transit and cash-processing services to financial institutions, retailers, government agencies and central banks, mints, jewellers and other commercial operations around the world) and Unicaja Banco (a Spain-based bank founded in 2011 as a result of a merger between former savings banks) were among the most important IPOs of the year. Specifically the IPO of Gestamp for a value of almost €1 billion was the third most important in Europe in the first half of the year.

Several Spanish real estate companies have launched successful IPOs in Spanish capital markets this year, including Neinor Homes (a Spain-based company that acquires, develops, and sells land for residential use in Spain) and Aedas Homes (a new property developer in Spain). In addition, Metrovacesa has been one of the biggest IPOs in the world in 2018. Most of these newcomers have been incorporated under the recently reformed SOCIMI framework.

iv Private equity

Private equity activity surged by 161.7 per cent in 2017 compared to 2016, showing the highest number to date of buyouts targeting Iberia.

In this context, private equity funds are investing in a wide range of industries that they consider to have significant growth potential, including food and drinks, retail, tourism, leisure, hotels and restaurants, energy, infrastructure, and life sciences and pharma.

The most active sectors for private equity deals by deal count were healthcare and life sciences, followed by tourism, and hotels and restaurants. Some of the most active funds by deal count included Portobello Capital, Cinven, Corpfin Capital, Black Toro, Blackstone, Ardian and KKR.

In 2018, note the following in particular:

  1. The acquisition by Blackstone of Cirsa Gaming Corporation, leader in the gambling sector with a prominent presence in Spain and Latin America.
  2. The voluntary tender offer launched by Brookfield Asset Management over the shares representing 100 per cent of the share capital of Saeta Yield, a Spanish listed company that owns, operates and acquires assets for the generation of renewable energy.
  3. The acquisition by MCH Private Equity of a majority stake in the share capital of Altafit Grupo de Gestión (a group dedicated to the fitness and health industry through Altafit Gym Club).


i General overview

In 2017, the acquisition finance market continued its expansion and growth after its recovery from 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 their lending activity with a positive but prudent approach.

Market estimates suggest that corporate and business loans from Spanish financing entities will increase during the second half of 2018, and that the availability of funds from Spanish banks (also for non-investment grade borrowers) will continue to improve.

Competition between traditional Spanish lenders and direct lending funds was stronger in 2017 than during 2016, since borrowers actively looked for more flexible ways of financing. Debt funds have taken advantage of investment opportunities and continued low prices. Shadow banking has significantly increased its presence in the Spanish market, and traditional private equity players have started new investment activities, including direct lending.

Debt issuance of Spanish companies in the flexible and liquid Anglo-Saxon markets was consolidated during 2017 and the first quarter 2018 (in spite of Brexit), most notably by real estate companies, as real estate used to be a sector 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.

ii Financing conditions

Apart from these general trends, the following were the main features of acquisition financings in 2017:

  1. The range of financing products available to borrowers is exceptionally broad: second-lien facilities, ancillary facilities, unitranche, 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 debt funds) continue to be frequently used to finance acquisitions.
  2. 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 common. 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.
  3. 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.

iii Other regulation

The adoption of the Draft Law regulating Real Estate Credit Agreements, of 17 November 2017, aims to transpose Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property. The main goal of this regulation is to improve consumer protection in the field of real estate credit agreements. In this sense, it may not affect contracts concluded between non-consumers, but it will undoubtedly have consequences for the flow of credit and the dynamism of the real estate sector in Spain.


The main legal framework of labour law in Spain is the Statue of Workers, which regulates the rights and obligations of employees and employers within the framework of labour relationships. The most recent relevant legislation in terms of labour law was Law 3/2012 on urgent measures to reform the labour market, which was enacted on 7 July 2012. Law 3/2012 introduced a significant set of measures aimed at improving the Spanish labour market, which was hit hard by the economic crisis and has very high unemployment rates.

Transfers of undertakings (TUPEs) are governed by Article 44 of the Statue of Workers on terms similar to other jurisdictions within the European Union: the transferee company must assume all the transferor's employees assigned to the transferred business or production unit, maintaining all their previous labour and social security rights (including pension commitments); and the transferor and the transferee companies will be jointly and severally liable for three years after the TUPE takes place in relation to any labour and social security obligations not met before the TUPE.

The legal regime for managing or executive directors is not provided for in the Statute of Workers, as these directors are not considered employees. Their service contract must be approved by the board of directors (without the involvement or vote of the relevant director). The contract must include all the terms and conditions under which the services are provided, especially all remuneration and compensation, and the director will not be allowed to receive any payment not expressly set out in the contract. On 26 February 2018, the Spanish Supreme Court issued a very controversial judgment declaring that the remuneration of managing and executive directors is subject to the same requirements and formalities as those applicable to any other director. The type of remuneration must therefore be included in the articles of association and an overall limit must be approved by the shareholders' meeting for all the directors.


As indicated in the last edition of The Mergers & Acquisitions Review, the government approved a significant tax reform that entered into force on 1 January 2015 that included significant amendments to tax regulations through the approval of Law 27/2014 of 27 November on Corporate Income Tax (the New CIT Law) and Law 26/2014 of 27 November, which modified the Personal Income Tax Law and the Non-Resident Income Tax. The most relevant novelties for the M&A practice were the following.

i 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 to which the corresponding company belongs.

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) are no longer deductible by the borrower for CIT purposes. This measure affects PPLs signed after 20 July 2014.

Following the OECD recommendations included in the BEPS Actions reports, 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 classification 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 maintained 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 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.

iv Transfer pricing rules

The New CIT Law modified the definition of a related party between parent and subsidiary entities as the relevant shareholder's stake needing to be at least 25 per cent or where decision-making power is, or can be, exercised (before, the threshold was 5 per cent).

v Participation exemption framework

The New CIT Law extended the application of the participation exemption regime to dividends and capital gains from Spanish resident companies, which previously was only applicable to non-resident companies. This essentially implied 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 a 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. Although it is not expressly established in the New CIT Law, the Spanish tax authorities also require the holding company to be incorporated for valid economic reasons, and not merely as a conduit company with the main objective of avoiding taxation on the capital gains realised on the transfer of its subsidiary. Therefore, the holding company should be a 'real' company that carries out a business activity for tax purposes and not a mere inactive income company.

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 a 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 replaced 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 accumulated tax losses is limited to 70 per cent of taxable income.

This limitation does not apply in the tax year in which a 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 removed the applicable 18-year limitation, allowing tax losses to be offset indefinitely.

The New CIT Law also incorporated additional limitations to the use of tax losses for medium and large companies. Thus, in the event that a company's turnover in the preceding year is between €20 million and €60 million, offsetting the accumulated tax losses is limited to 50 per cent of the positive CIT base; and if the turnover is above €60 million, the use of losses is limited to 25 per cent of the taxable base of the company.

viii Tax rate reduction

The New CIT Law gradually reduced the CIT rate from 30 to 25 per cent. Moreover, a reduced 15 per cent tax rate was 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 2014,6 the New CIT Law, which came into force for tax years commencing on or after 1 January 2015, broadened 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 were the following.

Unlike the previous regulation, the tax neutrality framework is now considered the framework applicable to mergers and demergers by default. A decision to disapply the tax neutrality framework must be communicated to the Spanish tax authorities.

The New CIT Law extended 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 carry-forward losses to be transferred 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 a merger are not recognised for tax purposes and will therefore no longer be deductible.

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

xi Non-resident income tax

Law 26/2014 reduced the tax rates on income obtained by non-residents in Spain. The general tax rate is 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 was reduced to 25 per cent.

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 was also amended, and applies 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 the National Markets and Competition Commission (NMCC):

  1. as a consequence of a 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; and
  2. 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.

In 2017, the number of notifications filed was slightly lower (94) than in 2016 (104). Most of the notifications filed were cleared in the first phase without commitments, and only three of them were approved in the first phase with commitments. The most prolific area was the manufacturing sector, with a significant upturn of the mergers assessed during the past three years, where the number of notifications in the sector doubled. Other relevant sectors are the commercial distribution, chemical and energy industries, while the financial and the medical industries have seen a decrease in the number of concentrations notified to the NMCC during the past year.

In terms of antitrust enforcement policy, in 2017 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, during 2016 and 2017 the NMCC maintained a good track record on enforcement in this field and investigated eight potential gun-jumping cases. In 2017, the NMCC imposed a fine of €20,000 on a company for gun-jumping.


Despite the political uncertainties, M&A prospects in Spain for the second half of 2018 and for 2019 are optimistic. The sustained improvement of the Spanish economy, continued deleveraging process, consolidation of key industries (tourism, telecommunications, energy, financial services), and 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, despite undeniable improvements in recent years, still dampens 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.

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.

The new complexity of private M&A deals in Spain has led to multiple structures and formulas to determine the price of the transaction, such as earn-outs and escrow mechanisms. W&I insurance has also become more prevalent, not only in private equity-sponsored transactions.

Finally, foreign private equity funds will continue investing in a wide range of industries, including food and drinks, retail, tourism, leisure, energy, infrastructure, real estate, and life sciences and pharma. Healthcare and pharmaceutical industries have potential, as public and private spending increases in response to an ageing population. Renewables and technology have attracted investors' interest in recent years. These investments now take a wider range of forms and vehicles.


1 Christian Hoedl is a partner and Miguel Bolívar Tejedo is a senior associate at Uría Menéndez.

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

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

4 The credit market is supervised by the Bank of Spain, and credit institutions by either the ECB or the Bank of Spain.

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

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