Spain’s favourable AT1 tax treatment under threat

Author: | Published: 7 Oct 2014
By Carlos Albinana, partner and head of tax at Allen & Overy in Madrid

On June 28 2014 Spanish law 10/2014 on the organisation, supervision and solvency of credit institutions came into effect. Amongst other things, the law sets out a special tax regime for participaciones preferentes , i.e. preferred shares issued, directly or indirectly, by Spanish banks.

The law confirms the existing favourable tax regime for this type of instrument, which has been in place since 1985. And it clarifies that instruments that qualify as additional tier 1 (AT1) capital according to the Capital Requirements Regulation (CRR), fall within the scope of this special tax regime.

Interest deductibility

Considerations payable on instruments that qualify as debt under Spanish GAAP - tax rules follow accounting rules for that purpose - are tax deductible according to Spain's general tax rules, while considerations on equity are not. But law 10/2014 expressly states that...