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Spain - Taxes and Incentives for renewable energy

Spain taxes and incentives for renewable energy KPMG Global Energy & Natural Resources.

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Tax incentives

The following includes a brief description of certain tax incentives that have not been specifically created for the renewable energies sector. Careful tax planning is therefore required to take advantage of these tax incentives.

Reduction of income from certain intangible assets

The net income derived from the license of the right to use or exploit or from the transfer of certain intangible assets as defined in article 23 of CIT Law, shall be included in the CIT taxable base with a 60 percent reduction, provided certain requirements are met.

Research & Development Corporate Income Tax credits

R&D tax credits

The tax credit base shall consist of the amount of research and development expenses and, if applicable, investments in tangible fixed assets and intangible assets, excluding real estate and land. Tax credit rates are set at 25 percent of the expenses incurred in the tax period for this purpose. In the event that the expenses incurred in pursuing the R&D activities in the tax period exceed the average of those incurred in the 2 preceding years, the rate established in the preceding paragraph shall apply up to that average, and 42 percent to the amount by which that average is exceeded.

Additional tax credits can be applied for expenses corresponding to expenses of qualified personnel (wages) engaged exclusively in R&D activities (17 percent), and for investments in tangible fixed assets and intangible assets, excluding real estate and land, used exclusively for R&D activities.

Tax credits for technological innovation activities

The tax credit base shall consist of the amount of the expenses incurred in the technological innovation activities. The tax credit rate is 12 percent.

Tax credits for R&D and technological innovation activities that have not been applied in a given fiscal year and that have not been used in that fiscal year because the tax due was insufficient may be carried forward to the following 18 tax years. If the tax due is insufficient for the application of these tax credits, a cash refund in the amount of the pending tax credits can be requested to the Spanish Tax Administration, with a discount of 20 percent of the amount of the pending tax credits (i.e. the payment in cash implies a reduction of the pending amount of the tax credit).

Tax credits for technological innovation activities applied or refunded will have a limit of 1 million Euros per year. In addition to that, R&D and technological activities tax credits applied or refunded will have a joint limit of 3 million Euros per year.

Capital duty exemption

As a result of the modifications introduced by RD 13/2010, Spanish Transfer Tax Law foresees an exemption of the Capital Duty regarding:

  • incorporation of companies
  • share capital increase
  • contributions of shareholders that do not constitute a share capital increase
  • transfer to Spain of the office of effective management of a company not previously located in the EU.

Tax allowances on local taxes

For certain local taxes such as construction and urban canon, tax allowances could be agreed with the corresponding local authority. The tax allowances to be agreed would depend on each local authority, and should be negotiated on a case-by-case basis.

Taxes on Energy

Taxes on electricity generation

These taxes are not strictly environmental taxes. Revenues that will arise from them will finance the Spanish deficit of the cost of generation and distribution of electricity.

  • tax on electricity generation
  • tax on spent nuclear raw and radioactive waste
  • tax on spent nuclear raw and radioactive waste storage
  • fee on use of continental waters to generate electricity (hydroelectricity generation).

The electrical energy attributable to the use of fuels in facilities that use any of the non-consumable renewable energies as primary energy shall not be subject to a premium-based economic regulation. This affects solar-thermal installations in particular.

Operating subsidies

Remuneration of energy production facilities under the special regime has been revised through Royal Decree-Law 9/2013, which entered into force on Sunday 14 July 2013. Such Royal Decree-Law comprises the following main provisions:

1. The amendment of Article 30.4 of the Electricity Sector Law, which basically provides that:

  • The new remuneration framework of special regime facilities (including facilities in operation) will be established by Royal Decree issued by the Council of Ministers.
  • In addition to the compensation for the sale of energy valued at market price, facilities may receive a specific remuneration consisting of a term per unit of installed capacity, to cover, where appropriate, the investment costs of a typical installation that cannot be recovered from the sale of energy and a term per operation, if applicable, to cover the difference between operating costs and revenues for the market share of such typical installation”. The regulated tariff regime, for a given period and updatable according to a prefixed formula, is consequently abolished.
  • In order to calculate the specific remuneration of a typical installation, it is necessary to consider, “over its regulatory life” and referring to the activity of an “efficient and well-managed company”:
    • standard revenues from the sale of energy generated, valued at the market price of production.
    • standard operating costs.
    • standard value of the initial investment.

Therefore, the determination of these parameters or assumptions will be critical in order to assess the remuneration for each installation. It will be necessary to wait for the approval of Royal Decree.

  • The costs or investments that are made in connection with rules or acts that are not applicable throughout all of Spain (i.e. regional authorizations and registrations) will not be taken into account. Also, the costs and investments that do not respond solely to the activity of electricity production.

2. The introduction of an additional first provision, called “reasonable return on production facilities entitled to economic premium regime” means that as of 14 July 2013, special regime facilities shall receive a “supplement for their investment costs based on standards by technologies”, according to a cost formula of 10-year Treasury + basis points, representing a return of 7.5 percent.

3. The above-mentioned return is ‘before taxes’ and may be revised every 6 years.

4. The repeal of the following provisions:

  • Royal Decree 661/2007, of 25 May
  • Royal Decree 1578/2008, of 26 September
  • Article 4 and paragraph 2 of the fifth transitional provision of Royal Decree-Law 6/2009, of 30 April.

5. To maintain compensation flows to facilities, such repealed rules shall apply temporarily, except for certain aspects, pending the approval of the Royal Decree with the new regulation. Thus, the facilities will continue receiving the current compensations under the transitional provisions commented above subject to regularization with the new methodology as of 14 July 2013.

6. Two immediate measures to reduce the costs of the electricity system are approved. The efficiency complement to facilities that were receiving it under Article 28 of Royal Decree 661/2007 is abolished, as well as the reactive power bonus of article 29 of the same regulation.

Following the approval of RDL 9/2013, the procedural steps began for all other regulatory texts. Specifically, a new Electricity Sector Law was passed (Law 24/2013, of 26 December). This new law confirmed the general principles already applied by Royal Decree-Law 9/2013.

Royal Decree 413/2014 of 6 June introduces the regulatory implementation of the principles set out in Royal Decree-Law 9/2013, regulating the current legal and economic system of facilities for renewables, co-generation and waste. This Royal Decree establishes a new remuneration system which is based on the principle of “fair return” and in standard facilities with standard costs and efficient management.

Under this new scheme, renewable electricity production facilities are remunerated with: i) revenues from the sale of the energy valued at market price and ii) specific remuneration items which, if necessary, cover those investment and operating costs that an efficient and well-managed enterprise does not recover on the market.

The specific remuneration is calculated on the basis of standard facilities, along its whole regulatory useful life, so that it guarantees the “fair return” to standard facilities.

The activity is assumed to be carried out by an efficient and well-managed enterprise. For calculating the remuneration parameters, the new remuneration framework takes into account: i) revenues from selling energy valued at the market price, ii) necessary operating costs for developing the activity and iii) the initial investment costs of the standard facility.

The new remuneration system for these facilities generally consists of:

  • revenue from market sales (EUR/MWh)
  • unitary remuneration for investment (EUR/MWh)
  • unitary remuneration for the operation (EUR/MWh).

The calculation of the unitary remuneration for investment and the operation is carried out on the basis of standard facilities considering standard investment and operation costs, as well as the future estimate of the market revenue for such standard facilities.

Order IET/1045/2014 of 16 June defines the values of the above new remuneration parameters.

Taxes and Incentives for renewable energy

A 2015 KPMG report that provides updates on renewable energy promotion policies for over 31 countries.

 
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