Companies accumulate a cushion of 336.8 billion in tax credits to pay less taxes.

In recent years, Spanish companies have reduced the volume of accumulated tax losses, which they use to reduce the amount of taxes payable in future fiscal years. And they have done so at a considerable pace. At the end of 2023, outstanding tax losses to be offset amounted to €336.887 billion, according to data provided to EL PAÍS by the Transparency Portal due to the Tax Agency's refusal to make them public. This represents a 41% drop compared to the €575.334 billion recorded at the end of 2019, as revealed in the White Paper on Tax Reform presented in 2022 and commissioned by the Ministry of Finance to 17 academics. Despite the decline, the available tax cushion is still enormous: equivalent to almost a fifth of Spain's GDP and more than eight years of corporate tax collection.

Negative tax bases are the red figures—basically, accumulated losses—that a company can carry forward and offset against future profits in other years. In practice, they function as a type of tax credit that allows the company to reduce its corporate tax burden in subsequent years . They have a direct impact on tax collection , since, as long as they exist, companies can pay less tax once they return to profit.

Tax losses arise, for example, when a company incurs more expenses than revenue during a fiscal year. The law assumes that a company's life cycle is marked by cycles of boom and bust, so it allows for offsetting losses against profits from future fiscal years. This can postpone—or even effectively eliminate—tax payments for years.

Corporate income tax is one of the great myriads of the Spanish tax system. It is full of details, loopholes, interpretations, and fine print, so finding the exact reasons for the decline recorded between 2019 and 2023 is almost impossible. Francisco de la Torre, State Treasury Inspector, points to a range of causes that could explain much of the reduction: from the effects of a Constitutional Court ruling that relaxed firms' room for maneuver regarding the tax, to an internal restructuring by companies to avoid possible sanctions from the Tax Agency. Without forgetting, of course, the post-pandemic recovery and the price crisis that flooded a large portion of companies with extraordinary profits, allowing for greater use of the tax losses they had kept under the mattress to reduce their tax bill.

The data provided by Transparency refers to the 2023 fiscal year, the tax return for which is due in 2024. That same year, in January, the Constitutional Court annulled the major reform implemented by former Finance Minister Cristóbal Montoro— now indicted for an alleged "network of influence" that benefited companies when he was minister—which in 2016 had severely limited the offsetting of negative tax bases with the aim of increasing public revenue. The court of guarantees made this decision due to a procedural flaw, as the change was implemented through a royal decree instead of through the usual Parliamentary process. And many companies, De la Torre points out, took advantage of the opportunity to massively offset outstanding tax bases before the government tightened the criteria again.

However, the cushion available to companies to reduce taxes has fallen much more than the Tax Agency's statistics on how many negative tax bases have been offset show—data that is public and can be considered the other side of the coin. According to Transparency, between 2019 and 2023, negative tax bases have been reduced by almost €240 billion. In contrast, official tax authorities only show approximately €90 billion offset during that period. Why is there such a difference? One explanation may be that many companies voluntarily decided to eliminate part of these tax bases from their tax accounting , either out of prudence or to avoid potential problems with the Treasury.

De la Torre recalls that the courts have generally recognized that the Treasury has the right to "analyze negative tax bases and impose penalties if it determines they are inappropriate or poorly justified." This increased oversight has had a clear deterrent effect: many groups have opted for caution and decided to voluntarily remove the credits from their accounting records.

This is something also suggested by Joan-Francesc Pont, professor of Financial Law at the University of Barcelona and advisor at the Martínez Comín law firm. Negative tax bases, he points out, are simply an entry that forms part of the company's tax accounting, not necessarily the actual financial statement. In other words, they do not represent cash, but rather a potential tax saving. Therefore, when faced with legal uncertainty, especially if they doubted the legitimacy of these entries, many companies may have opted to "clean them up, simplify their accounts, and reduce their exposure to potential conflicts with the Treasury, avoiding future contingencies." Groups, the expert recalls, "can report a specific amount of negative tax base and subsequently modify it through a supplementary declaration, even if there has been no offset." "It's a right they have," the inspector confirms.

Experts are also focusing, albeit to a lesser extent, on the effects of the economic crisis stemming from the pandemic. “Many small and medium-sized businesses disappeared,” says De la Torre. “And with them also went the outstanding tax losses they had.”

A tax hole

Negative tax bases are a mechanism that, by their very nature and application, reduce the revenue the State obtains through corporate tax, by an amount that is difficult to calculate precisely. The authors of the White Paper estimated that this impact would be at least €5 billion annually.

This is one of the factors that explain why the tax base—the amount on which the tax is actually calculated—has progressively shifted away from the accounting results declared by companies, a figure that, to a certain extent, reflects their profits. That is, what they earn after subtracting expenses. In 2024, the latest year with available data, companies reported profits of €339 billion. However, the final tax base was reduced to €180.806 billion after the application of tax credits and other mitigation mechanisms, such as the exemption of income earned abroad.

“The offsetting of tax bases is not a Spanish invention; it exists in many other countries and is applied with varying degrees of generosity. What doesn't make sense is that a company can deduct its losses ad infinitum ,” argues Ignacio Zubiri, a professor at the University of the Basque Country. The economist criticizes the fact that these tax credits do not expire, an opinion that contrasts with the White Paper's proposal for tax reform, which suggests reforming the offsetting system but rules out introducing a time limit. “Perhaps a 10-year period is sufficient to deduct them, and the types of items that companies can deduct could even be limited. Otherwise, the tax itself could be burdened,” Zubiri concludes.