EMEA Tax & Legal Insurance Newsflash

Spain

Pillar 2 Update

Spain implemented last December the EU Pillar 2 Directive through Law 7/2024, which establishes a Complementary Tax to ensure a global minimum level of taxation for large multinational and domestic groups. Building on this, the regulatory framework governing the application of the minimum tax has been further developed through Royal Decree 252/2025, of 1 April (“Pillar 2 Regulation”), which approves the Regulation on the Complementary Tax. This regulation—published on 2 April 2025—sets forth the operational and procedural rules underpinning the Complementary Tax, including clarification and interpretative guidance concerning key concepts and mechanisms provided for in Law 7/2024.

Computation of GloBE Income and Adjusted Covered Taxes: The Regulation establishes detailed rules on the computation of the GloBE income and the adjusted covered taxes for purposes of determining the Effective Tax Rate (ETR) and potential top-up tax liability. It also includes provisions regarding adjustments to be applied in calculating qualifying income or loss of the constituent entities, particularly in connection with the economic substance-based income exclusion. In this regard, it elaborates on the methodology for calculating eligible tangible assets and qualifying employees in a given jurisdiction.
Deferred tax accounting: For purposes of deferred tax accounting under the GloBE rules, the Regulation confirms that the starting point for determining the deferred tax expense or income of a constituent entity is the entity’s financial accounting net income or loss before any consolidation adjustments, including eliminations of intra-group transactions.
Transferable tax credits: The Regulation also defines and regulates the treatment of transferable tax credits, with specific provisions aimed at addressing their recognition, valuation, and application within the GloBE framework.
Compliance and administrative obligations: Several distinct reporting requirements are introduced:

The GloBE Information Return must include detailed group-level data, information regarding the application of safe harbour rules or other exemptions from top-up tax, and the calculation of the top-up tax liability.
A simplified reporting regime is available for tax periods starting before 31 December 2028 (or starting after that date but ending before 1 July 2030), allowing for jurisdictional-level reporting without a full breakdown per constituent entity.
Spanish constituent entities not required to file the GloBE Information Return (because the obligation is fulfilled by the UPE or a designated surrogate entity) must submit a notification identifying the reporting entity.
The filing deadline for the GloBE Information Return is the final day of the fifteenth month following the close of the relevant fiscal year. For the transition period, however, the return must be filed no later than two months before the end of the eighteenth month following the conclusion of the transitional tax period.

The Regulation also details the administrative penalty regime for non-compliance, including criteria for determining what constitutes a "data point" or "set of data" for penalty purposes.

In general, the new tax applies to tax periods beginning on or after 31 December 2023. However, the secondary complementary tax (UTPR rule) will not take effect in Spain until at least 1 January 2025. Additionally, Spanish law provides that the UTPR will have no effect in the jurisdiction of the ultimate parent entity for multinational groups whose tax period begins before 31 December 2025 and ends before 31 December 2026, provided the ultimate parent entity is subject to a nominal tax rate of at least 20 percent on business profits.

VAT Updates

Reduced VAT Rate for Renovation and Repair Works

From a VAT perspective, renovation and repair works carried out on buildings or parts thereof intended for residential use are subject to a reduced VAT rate of 10%, provided that certain requirements are met. Specifically, it is expressly stipulated that the recipient of the works must be a natural person who does not act in the capacity of a businessperson or professional and who uses the dwelling for private purposes, or alternatively, a homeowners’ association.

This subjective requirement—identifying the recipient of the service—has been the subject of significant interpretative disputes, particularly in cases where the cost of such works is assumed directly by insurance companies under insurance contracts. The key issue has been whether the reduced VAT rate applies when the service is contracted and paid for by an insurer, even though the ultimate beneficiary is the insured individual who owns and uses the property as a private residence.

In this context, the Spanish Supreme Court has recently issued two judgments aimed at resolving this interpretative conflict and consolidating legal doctrine: Judgment no. 1259/2025, dated 21 March 2025, and Judgment no. 1611/2025, dated 31 March 2025. It should be noted that, as of the date of issuance of this newsletter, a cassation appeal has been accepted for processing and remains pending resolution on this matter.

In both decisions, the Supreme Court confirms the inapplicability of the reduced VAT rate in cases where the insurance company contracts and pays for the renovation or repair services, even where the insured party is the owner and habitual user of the residential property. The Court underscores the principle of strict interpretation applicable to VAT exemptions and reduced rates, as established under both Spanish domestic legislation and the case law of the Court of Justice of the European Union, as it understands that the objective and subjective requirements laid down in article 91.Uno.2.10º of the VAT Law are not satisfied, since the recipient is not a private individual acting as consumer, but a taxable person acting in the course of its economic activity. Therefore, the insurer is deemed to be the recipient of the service, as it is the entity that enters a contractual relationship with the service provider and bears the cost of the works, acting within the scope of its business activity.

Furthermore, the Supreme Court has made it clear that the presence of additional services provided to the insurer—beyond the renovation or repair itself—reinforces the inapplicability of the reduced rate in these scenarios.

Consequently, in these scenarios, the Supreme Court has ruled that the general VAT rate of 21% applies, irrespective of the fact that the property repaired is a private residence owned by an individual insured under the policy or the service rendered by the insurer includes other ancillary services.

This interpretation aligns with the criterion followed by the Spanish National Court in previous judgements and by the Spanish Tax Authorities in tax audits.

It is worth noting that, as of the date of this newsletter, a further cassation appeal on this issue is pending before the Supreme Court, which may provide additional nuance in the future. In the meantime, the current doctrine requires careful review of the contractual arrangements in each case to ensure the correct VAT treatment is applied.

Patricia Ferrer Torres Partner T: +34 699 25 91 12 E: patricia.ferrer.torres@pwc.com

Jose Maria Dutilh Villalba Senior Manager T: +34 699 040 793 E: jose.dutilh.villalba@pwc.com

Janira Hassan Hoger Senior Associate T: +34 676 25 65 06 E: janira.hassan.hoger@pwc.com

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