The tax consolidation regime is one of the most relevant corporate tax mechanisms available to business groups operating in Spain. Its main purpose is to allow companies within the same group to be taxed as a single entity for Corporate Income Tax purposes. This opens the door to significant tax advantages, especially when there are companies within the group that generate losses which can be offset against the profits of others.
In this article, we explain how the regime works, its main benefits, the legal requirements, and why it can be a key tool for tax optimisation.
How This Regime Benefits Groups with Loss-Making Companies
In a tax system without consolidation, losses can only be offset against future profits of the same entity. This may take years or may never materialise.
Under the tax consolidation regime, the losses generated by one company can be offset in the same tax period against the profits of another company in the group. This results in an immediate reduction of the consolidated tax base and, consequently, a tangible decrease in the group’s corporate tax burden.
For many organisations, this mechanism represents a significant improvement in financial and tax planning.
Advantages of Tax Consolidation at Group Level
One of the most valued advantages of the regime is the ability to offset positive and negative results globally, often resulting in substantial annual tax savings. But the benefits go beyond this.
Another important advantage is that tax credits and deductions apply to the group as a whole, rather than individually. This makes it easier to benefit from incentives that individual companies might not qualify for on their own.
Intragroup transactions also take on a new dimension. The results generated from transactions between group companies do not have immediate tax effects because they must be eliminated in the consolidated tax return. These results are only recognised for tax purposes when the transaction is ultimately carried out with a third party.
At an administrative level, the regime simplifies several obligations, particularly in relation to transfer pricing documentation and certain withholding obligations. This simplification reduces time, cost, and potential risks.
Essential Requirements to Join the Regime
To apply the regime, the following requirements set out by the Spanish Corporate Income Tax Law must be met:
✔ Existence of a Parent Company
The parent company must:
Hold at least 75% of the share capital of each subsidiary (or 70% in the case of listed companies).
Possess the majority of voting rights.
Maintain this level of control continuously throughout the tax period.
✔ Spanish Tax Residency
All companies within the group must be tax residents in Spain.
If the parent company is based abroad, the Spanish subsidiaries may form a “fiscal sub-group”, provided that the subsidiaries meet the required control thresholds among themselves.
✔ Mandatory Inclusion
If a company meets the conditions to form part of the tax group, its inclusion is not optional.
Entities Excluded from the Tax Group
Not all companies may join the tax group. Excluded entities include:
Companies subject to incompatible special tax regimes (e.g., entities under Law 49/2002, investment funds, venture capital entities).
Permanent establishments of non-resident companies.
Entities that do not determine their tax base under the direct estimation method.
A company undergoing insolvency proceedings is not automatically excluded; exclusion only occurs if the required conditions for group membership (e.g., control) cease to be met.
How a Tax Group Is Formally Established
To implement the regime:
- The boards of directors of all companies involved must approve the decision to join the tax consolidation regime.
- These resolutions must be formally documented before the end of the financial year.
- The option must be communicated to the Spanish Tax Agency via Form 036.
- The regime becomes effective in the following tax period.
The consolidated tax return must be filed by the parent company using Form 220.
How Taxation Works Once the Group Is Established
Each company continues to file its individual Corporate Income Tax return, although it no longer has tax effects.
The only return with tax significance is the consolidated return filed by the parent company, which integrates:
The individual tax bases of all group companies.
The elimination of intragroup transactions.
The recognition (incorporation) of results previously eliminated when required by law.
The final result is the consolidated tax base, which is the figure used to calculate and pay the group’s Corporate Income Tax.
Practical Example of Tax Savings Under Consolidation
Imagine two companies belonging to the same group:
One reports a profit of €500,000
The other reports a loss of €300,000
Without tax consolidation, the company with the profit would be taxed on €500,000, while the company with the loss would need to carry it forward to future years.
With tax consolidation, the consolidated tax base would be:
€500,000 – €300,000 = €200,000
The group would only pay tax on this amount, generating a significant tax savings.
Note: this is a simplified example. The actual consolidated tax base is determined after applying all required eliminations and incorporations.
Common Mistakes When Applying This Regime
Given its technical complexity, common errors include:
Failing to include a company that is legally required to join the group.
Incorrectly applying eliminations or incorporations.
Failing to maintain participation requirements throughout the tax year.
Submitting notifications late.
Inadequate documentation of board resolutions.
Why It Is Essential to Review the Regime Every Year
A group’s structure may change due to mergers, acquisitions, spin-offs, or internal reorganisations. These changes may affect both the legal requirements and the economic suitability of applying the regime.
For this reason, performing an annual review is essential to ensure correct application and to maximise the benefits of the regime.
How EBF Consulting Can Help You
At EBF Consulting, we analyse each case individually to determine whether your group can benefit from the tax consolidation regime and to design a safe, efficient, and fully compliant tax strategy.
We take care of:
Reviewing the structure of your group
Managing the constitution of the tax group
Preparing all required tax filings
Ensuring compliance with all legal obligations
If you would like to know whether your group can apply this regime or need expert advice, you may contact us at +34 928 513 311.
Conclusion
The tax consolidation regime is a powerful tool for any business group seeking to optimise its corporate tax position, especially when there are companies with losses. Its ability to offset results, simplify obligations, and increase tax efficiency makes it a strategic pillar within corporate tax planning.
Analysing its suitability with specialised support is the first step toward maximising its advantages and ensuring a fair, coherent and economically aligned tax structure.