The European Court of Justice (ECJ) ruled on April 25 (case C-64/11) that Spanish legislation levying an immediate exit tax on the transfer of residence or the transfer of a company’s assets to another EU Member State is contrary to EU law. Thus, foreign companies with affiliates or permanent establishments in Spain that are affected by this decision should consider filing refund claims.

Thus, in accordance with Article 17, paragraph 1, of the Spanish Corporate Income Tax Law, where:

- Transfer of residence of a company located in Spain to another Member State, or

- Cessation of activities in Spain of a permanent establishment, or

- Transfer to another Member State of its assets in Spain,

unrealized gains are integrated into the tax base of the tax year. On the contrary, such gains have no immediate tax consequences if these operations take place within the Spanish territory.

In the judgment, the ECJ recalls that freedom of establishment does not preclude that capital gains are subject to tax although not yet materialized, but is opposed, however, to requiring immediate payment of such taxable gains.

Although we have to wait for the Spanish government’s reaction to the judgement, please request more information to our tax specialist.