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 complex financing formulas and deal structures. 2018 was 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 2018 and the first quarter of 2019, Spain consolidated and strengthened 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 2.6 per cent in 2018. High liquidity in the debt and capital markets, increased investment capacity of private equity and funds (especially international funds), the success of fundraising, low interest rates and the strategic push of big corporations compensated for macroeconomic uncertainties. Despite certain unfavourable political conditions, economic growth also remained strong in the first half of 2019 (with forecasts in the region of 2.4 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 lay the foundations for a stable economy in coming years.

The very positive development of Spain's economy has been counterbalanced by certain political instability (epitomised by the motion of no confidence that led to a change of government in June 2018, and by the still-existing challenges fostered by some pro-independence regional parties in Catalonia) and by uncertainties about the future of the public pension system. Other uncertainties affecting M&A activity include concerns about the global economy – particularly 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 investments – uncertainties related to Brexit's final outcome and its impact on the European project, and tense trade relations of Europe and China with the United States.

Despite these apprehensions, M&A activity in Spain has been very solid. M&A targeting Iberia in 2018 increased considerably in terms of volume from the preceding year (an approximate increase of €18 billion from 2017), reaching record levels. In 2018, Spain was one of the leading countries in the eurozone and the fifth in the world in rankings based on volume of M&A transactions. The number of deals in 2018 was also higher than in 2017 (by more than 250 deals). Despite the fact that during the first quarter of 2019 there has been a relative deceleration in M&A activity, Spain's outlook for 2019 and 2020 remains strong, and we expect this to result in a significant increase in deal announcements throughout the second half of 2019.

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

  1. Spanish targets have become attractive due to the strengthening of their operations and balance sheets, the significant improvement of the macroeconomic environment, including the depreciation of the euro, and the availability of debt financing buttressed by low interest rates, which are not expected to increase.
  2. Spanish corporate and financial institutions are completing their deleveraging processes. Spanish banks and other financial institutions have continued selling non-core assets and branches, divested performing and non-performing loan portfolios, and have exited from industrial shareholdings.
  3. 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 2018, real estate was also particularly relevant due to the continuous increase in prices over recent years.
  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 North American and Latin American investments, mainly from the United States and Mexico. Certain Asian countries (Hong Kong and Singapore, mainly) have also been relevant players in terms of foreign investment.
  5. Europe (and particularly Spain) is still experiencing an increase in private equity M&A transactions in comparison to previous years. 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 holdings acquired before the financial crisis.
  6. Outbound foreign investments have also increased, focusing Spanish investments mainly on Europe, Latin America and the United States, and to a lesser extent Asia.
  7. 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 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. Following the general elections in April 2019, and thus a possibly new and stable government, this pre-parliamentary activity is likely to resume.

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, 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 Restructurings regulates mergers, spin-offs, conversions, en bloc transfers of assets and liabilities, and international transfers of registered addresses. 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 an 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 that creates uncertainty in LBOs, particularly due to legal interpretations by the Spanish commercial registries.2

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., debtors who are, or will imminently be, unable to regularly comply in a timely manner with their 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 a 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 have been 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 increased with respect to 2017, breaking the downward trend since 2013.

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).


Due to parliamentary inactivity in recent years as a result of the difficulty of obtaining majorities in Parliament, there has been reduced legislative activity in terms of corporate and takeover law.

In 2018, the Companies Law and the Commercial Code were amended to further develop the information rights of shareholders in connection with non-financial matters. The goal of this amendment, inspired by the Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups, is to provide stakeholders with certain non-financial sensitive information, such as, inter alia, actions aimed at fostering respect for human rights and sustainable growth, anticorruption mechanisms and fighting against discrimination.

A Business Secrets Law was enacted in February 2019. This new regime, which is complemented by other existing regulations (such as unfair competition law or the law regarding the regulation of criminal breaches of confidence) provides companies operating in Spain with a useful mechanism to protect trade secrets from third parties' illegal interference.

Likewise, it is worth noting Royal Decree Law 19/2018 on payment services, which provides comprehensive regulation of the professional activity of payment services; and Royal Decree Law 14/2018, which modifies Royal Legislative Decree 4/2015 of 23 October on the Consolidated Stock Market Law and introduces reinforced protection mechanisms for financial investors.

It is also foreseen that during 2019, a new regulation of the commercial registry will be approved (the current regulation dates back to 1996) that will modernise its mechanisms and organisation, and 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, were the following: Royal Legislative Decree 4/2015 of 23 October on the Consolidated Stock Market Law; the Law 11/2015 of 18 June on credit institutions' recovery and resolution; and Royal Decree 877/2015 of 2 October on legislative developments of the Savings Banks and Banking Foundations Law and the 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 2018 we witnessed a progressive increase in the use of formulas aimed at minimising the risks assumed by parties in M&A deals. From these formulas, it is worth noting the increasingly important role of warranty and indemnity (W&I) insurance, which covers losses arising from specific indemnities and the representations and warranties included in sale and purchase agreements.


In 2018 saw an increase in the interest of international investors in the Spanish real estate, energy, tourism, engineering and insurance sectors. Private equity investments continued to grow, and the outlook for 2019 both for inbound and outbound M&A remains strong.

2018 saw the following:

  1. the acquisition of Abertis Infraestructuras, SA by a consortium formed by ACS SA, Atlantia SpA and Hochtief AG, for €32.1 billion;
  2. Taiyo Nippon Sanso's acquisition of the industrial gas and related machinery and equipment business of Praxair, Inc, for €4.9 billion;
  3. Lone Star's €3.9 billion acquisition of an 80 per cent stake in the real estate business of CaixaBank SA as well as Servihabitat Gestion Inmobiliaria, SLU;
  4. the acquisition of a 20.07 per cent stake in Naturgy by CVC and Corporación Financiera Alba from Repsol SA for €3.8 billion; and
  5. the €3.5 billion acquisition of a 59.2 per cent stake in Itinere Infraestructuras, SA from Gateway Infrastructure Investments, LP, a US-based fund managed by Corsair Capital LLC, Liberbank SA and Sacyr SA, from APG Group NV, a Netherlands-based pension fund asset manager, and Corsair Capital LLC, a US-based private equity firm.

The following, among others, were announced in 2019 or are in the pipeline:

  1. the acquisition by LetterOne, an international investment business based in Luxembourg, of DIA Distribuidora Internacional de Alimentación, for €1.7 billion;
  2. PAI Partners SAS, a France-based private equity firm, through its PAI Europe VII fund, announced its acquisition of Areas, SA, a Spain-based company engaged in food and beverage services and travel retail business, from Elior SCA, a listed France-based company, for a consideration of €1.54 billion;
  3. the acquisition of Universidad Alfonso X el Sabio by CVC for €1.1 billion;
  4. the acquisition of 89.7 per cent of Hispasat SA by Red Eléctrica de España from Abertis Infraestructuras for €949 million; and
  5. the acquisition of Grupo Konectanet by Intermediate Capital Group (UK) from Santander and PAI Partners, for €700 million.


i Public M&A

Public M&A also witnessed more activity, with the increased interest of international investors in real estate, construction and infrastructure and energy public megadeals:

  1. the aforementioned acquisition of Abertis Infraestructuras, SA by a consortium formed by ACS SA, Atlantia SpA and Hochtief AG;
  2. the €2.5 billion takeover bid for Saeta Yield, the Spain-based and listed renewable energy company, by Brookfield Asset Management, the Canada-based and listed alternative asset manager, through TerraForm Power;
  3. the Carlyle Group's acquisition of a significant minority stake in Compania Espanola de Petroleos, SAU (Cepsa), a Spain-based company engaged in the exploration for and production of petroleum, and the refining, distribution and sale of crude oil, natural gas and electricity, from Mubadala Investment Company PJSC, the UAE-based sovereign wealth fund, for €2.2 billion;
  4. the acquisition by a group of investors of a 50.1 per cent stake in Redexis Gas SA from Goldman Sachs Infrastructure Partners for €2 billion; and
  5. Minor International's €2.7 billion offer for NH Hotel Group.

ii Real estate

As mentioned in previous editions, real estate has established itself as a prominent field for M&A activity 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 has not amended the tax framework applicable to the Spanish SOCIMIs, which are similar to real estate investment trusts and which are more attractive to investors.

Investor appetite made 2018 a good year in quantitative terms, including the following:

  1. the acquisition by Lone Star of 80 per cent of the real estate business of Caixabank for €3.9 billion;
  2. Minor International, a Thailand-based and listed hospitality group, launched an offer for NH Hotel Group for €2.7 billion;
  3. Blackstone Group, via Tropic Real Estate Holding, SL, acquired Testa Residencial from Merlin Properties Socimi, SA, BBVA SA, Acciona Inmobiliaria SL and Banco Santander, SA for €2.5 billion;
  4. Blackstone Group made a takeover offer to buy the remaining shares it did not own in Hispania Activos Inmobiliarios SOCIMI, SA for €2.29 billion; and
  5. Inmobiliaria Colonial, SA acquired a 22.19 per cent stake in Societe Fonciere Lyonnaise SA from Qatar Investment Authority for €718 million.

In addition, Santander sold Testa Residencial to Blackstone, while Cerberus acquired BBVA's real estate business. The pipeline for such assets looks healthy, with both Banco Sabadell and SAREB reportedly looking to sell portfolios.

iii IPOs

Although we have witnessed the launch of Metrovacesa, Árima, Solarpack y Amrest IPOs, 2018 was a bad year for the Spanish Stock Exchange, 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.

In general, forecasts for 2019 are much more optimistic, as companies (some of which had to postpone IPOs initially planned for 2018), including Glovo, Cepsa, Via Célere, Tendam (formerly Cortefiel) and Cox Energy, among others, could launch IPOs during 2019 and become important actors on the Spanish Stock Exchange.

iv Private equity

Spanish private equity activity in 2018 increased compared to 2017, showing the highest ever number of buyouts (€26.7 billion in comparison to €13.5 billion in 2017) and the second highest ever number of exits (€16.6 billion).

Spain has had two consecutive years of record investment volume, which is positive news not only for private equity activity but for the Spanish economy as a whole. In 2018, more foreign investors (private equity, hedge funds and investment banks) landed in Spain looking for investment opportunities. Domestic private equity funds and asset managers remained interested in co-investment opportunities with foreign-funds, offering their 'boots on the ground' approach and expertise to larger players, spurring M&A activity. According to the Spanish Venture Capital & Private Equity Association, the total investment volume in the Spanish private equity market last year reached a new record of over €6,000 million across 740 investments. This was driven by a number of big-ticket equity deals, the strong activity of international funds, the outstanding performance of the mid-market, a rise in investments made by private domestic firms and a clear dynamism on the divestment front.

International funds accounted for 77 per cent of the total investment volume (with €4.25 billion invested across 118 deals), which keeps suggesting that Spain is the 'place to be'. However, domestic players have also been very active. On the divestment front, nearly 50 per cent of exits took the form of sales between private equity houses, while almost a quarter involved industrial operators.

The most active sectors for private equity deals by deal count were real estate, technology, media and telecommunications, and energy.

Technology sectors in Spain have made impressive progress in the past few years. They have showcased the greater number of deals per industry sector in 2018, with steady growth in deal value. The important international component of technology-driven transactions evidence how Spanish companies have developed experience at home that they have exported overseas with great success.

Some of the most active funds included Blackstone, KKR, CVC, Carlyle, Cinven, Lone Star, Apollo, Cerberus, Oaktree and TPG, while we saw increased activity by other international players such as Ardian, Bain Capital and EQT Partners. New landings of foreign investors in 2018 included Orient Hontai, Peninsula Capital or SK Capital Partners.

Average Iberian EBITDA buyout multiples stood at 16.5 times EBITDA in 2018, up from 11.8 times EBITDA in 2017.

2018 deals

  1. The acquisition by Lone Star of 80 per cent of the real estate business of Caixabank for €3.9 billion;
  2. the acquisition of a 20.07 per cent stake in Naturgy by CVC and Corporación Financiera Alba from Repsol SA for €3.8 billion;
  3. APG Group NV's and Corsair Capital LLC's €3.5 billion acquisition of a 59.2 per cent stake in Itinere Infraestructuras, SA from Gateway Infrastructure Investments, LP (managed by Corsair Capital), Liberbank SA and Sacyr SA;
  4. Blackstone Group's €2.5 billion acquisition of Testa Residencial from Merlin Properties Socimi, BBVA, Acciona Inmobiliaria and Banco Santander; and
  5. the voluntary tender offer launched by Brookfield Asset Management over shares representing 100 per cent of the share capital of Saeta Yield for €2.45 billion.

2019 deals

  1. The previously mentioned Carlyle Group's acquisition of a significant minority stake in Cepsa for €2.27 billion. As a part of the deal, Carlyle will acquire a stake of between 30 and 40 per cent.
  2. the acquisition of Areas, SA from Elior SCA for a consideration of €1.54 billion by PAI Partners through its PAI Europe VII fund; and
  3. a consortium led by EQT Partners comprising Groupe Bruxelles Lambert SA and Corporacion Financiera Alba SA launched a tender offer to acquire Parques Reunidos Servicios Centrales SA for €1.2 billion.

There have been no signs of a slowdown in the private equity industry in Spain in 2019: to the contrary, the fundraising carried out by international and domestic funds in previous years, the envisaged interest rates and investors' demands for investment alternatives suggest that 2019 will continue to be buoyed by the strong tailwinds of the past two years.


i General overview

In 2018, the acquisition finance market continued its expansion following the recovery from the financial crisis, establishing itself as an essential business within the M&A framework. 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 2019, and that the availability of funds from Spanish banks (especially for non-investment grade borrowers) will continue to improve.

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 were consolidated during 2018 and the first quarter 2019 (in spite of Brexit), most notably by real estate companies, which 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 continued to be the main features of acquisition financings in 2018:

  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 bond 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 regulations

The enactment of Law 5/2019 on real estate credit agreements has improved the regulation of consumer protection in credit agreements relating to residential immovable property. Since the main goal of this regulation is to improve consumer protection in the field of real estate credit agreements willing to acquire real estate for residential purposes, it may not affect contracts between non-consumers.

Likewise, Royal Decree Law 17/2018 was enacted in November 2018 and established that lenders (and no longer borrowers) are liable in relation to the tax authorities to pay stamp duty upon the execution of mortgage-backed loans. In practice, however, lenders have increased the costs of financing to compensate for this new burden, which is often ultimately borne by the borrower.


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 Royal Decree-Law 8/2019 on urgent measures on social protection and against labour precariousness with regard to working hours, which was enacted on 8 March 2019. Royal Decree-Law 8/2019 introduced a set of measures aimed at improving the precariousness of the Spanish labour market and Spanish social security payments.

Transfers of undertakings are governed by Article 44 of the Statue of Workers on terms similar to other jurisdictions within the European Union:

  1. 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
  2. transferor and transferee companies will be jointly and severally liable for three years after a transfer of undertakings takes place in relation to any labour and social security obligations not met before the transfer.

The legal regime for managing and 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). Such contract must include all the terms and conditions under which services are provided, especially all remuneration and compensation, and directors will not be allowed to receive any payment not expressly set out in their contracts. 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. Their remuneration must therefore be included in the overall limit approved by the shareholders' meeting for all directors.


The government approved a significant tax reform that entered into force on 1 January 2015 and that included significant amendments to the Spanish tax regulations through the approval of Law 27/2014 of 27 November on Corporate Income Tax (CIT Law) and Law 26/2014 of 27 November, which modified the Personal Income Tax Law and the Non-Resident Income Tax6 (Law 26/2014). Moreover, on 30 September 2016 the government approved Royal Decree Law 2/2016 of 30 September on tax measures to reduce the public deficit (RDL 2/2016), which also contained relevant measures. 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 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; 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 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 CIT Law maintained the general limitation on the tax deductibility of net financial expenses (30 per cent of operating profits), with a minimum deductibility threshold of €1 million.

An additional limitation on leveraged acquisitions was introduced: financial expenses derived from the acquisition of companies that join a 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 CIT Law modified the definition of a related party between parent and subsidiary entities: the relevant shareholder's stake needs to be at least 25 per cent, or the relevant shareholder must be able to exercise decision-making powers (the threshold was 5 per cent before).

v Participation exemption framework

The 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 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 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 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. Except in certain situations, the capitalisation reserve cannot be distributed during the following five years.

vii Carry forward losses

According to the CIT Law, 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 CIT Law removed the applicable 18-year limitation, allowing tax losses to be offset indefinitely.

The CIT Law also incorporated additional limitations to the use of tax losses for medium and large-sized companies. Thus, in the event that the 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 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 prepayments

RDL 2/2016 established new tax measures on CIT prepayments that applied to those whose payment period began after 30 September 2016. According to these measures, the CIT prepayment rate for CIT payers with a turnover exceeding €10 million in the prior fiscal year increased to 24 per cent (as opposed to the 17 per cent rate applicable to date) over the ongoing year's taxable income. In any event, the CIT prepayment will amount to a minimum of 23 per cent (25 per cent for some types of entities) of the accounting result of the first three, nine or 11 months of each year; or, for taxpayers whose tax period differs from the calendar year, of the result of the period between the beginning of the tax period and the day before the start of each CIT prepayment period.

x CIT group framework

Based on the ruling of the European Court of Justice of 12 June 2014,7 the CIT Law 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.

xi 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 not apply the tax neutrality framework must be communicated to the Spanish tax authorities.

The 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 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 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.

xii Non-resident income tax

Law 26/2014 reduced 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 Spain's 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 2018, the number of notifications filed was slightly lower (84) than in 2017 (96). Most of the notifications filed were cleared in the first phase without commitments, and only four of them were approved in the first phase with commitments. In one case, the NMCC initiated a second phase review and finally cleared the transaction with commitments. Real estate, the manufacturing sector, the chemical industry and the energy industry were the main sectors in terms of the number of transactions notified to the NMCC in 2018.

In terms of antitrust enforcement policy, in 2018 the NMCC continued to closely monitor companies' compliance with its decisions through a specialised division within the Competition Directorate established 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, the NMCC has created a division to identify transactions that may be subject to merger control clearance in Spain in order to identify potential cases of gun jumping.


Despite the political uncertainties and rumours of deceleration, M&A prospects in Spain for the second half of 2019 and 2020 are optimistic. The resilient macroeconomic scenario will continue to help M&A in general. Likewise, the sustained improvement of the Spanish economy, continued deleveraging process, consolidation of key industries (tourism, telecommunications, energy, financial services), prospective political stability following general elections in April, low interest rates 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 the undeniable improvements in recent years, is still dampening consumer spending (although domestic demand has inched up). In this scenario, the government continues to struggle with a large deficit and some political instability.

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 rollovers, earn-outs and escrow mechanisms. W&I insurance has also become more prevalent, and not only in private equity sponsored transactions.

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


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

2 Translations (into 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 the ECB or the Bank of Spain.

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

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

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