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November 3, 2022

Spain implements reverse hybrid mismatches rule under EU ATAD 2

  • The Spanish Council of Ministers has approved an RDL through which the reverse hybrid mismatch rules under the European Union (EU) ATAD 2 will be implemented.

  • These rules were published on 19 October 2022 and are effective as from 1 January 2022.

  • Where the relevant requirements are met, the Spanish reverse hybrid entity will become a Spanish Corporate Income Tax taxpayer.

Executive summary

On 18 October 2022, the Spanish Council of Ministers approved the Royal-Decree Law (RDL) implementing the reverse hybrid rules set forth in the EU Anti-Tax Avoidance Directive (Council Directive 2017/952 of 29 May 2017, “EU ATAD 2”) into the Spanish legislation, which was published in the Spanish Official Gazette on 19 October 2022.

Reverse hybrid mismatches rules were excluded from the initial implementation of EU ATAD 2 into the Spanish legislation (See EY Global Tax Alert, Spain implements EU ATAD 2: Detailed analysis, dated 17 March 2021).

Detailed discussion

Approval procedure

The Spanish Council of Ministers has approved an RDL through which the reverse hybrid mismatch rules under EU ATAD 2 will be implemented. The RDL is a formal legislative procedure which does not require Parliamentary approval, but it must be ratified by the Spanish Congress within a 30-day period following its publication.

This expedited approval process must be grounded on extraordinary urgency reasons. In this case, the Government asserted that this legislative procedure is followed by the need to comply with the implementation deadlines of the EU ATAD 2 for reverse hybrid rules (Article 9a of the Directive).

ATAD 2 required that EU Member States adopt and publish by 31 December 2021 the laws, regulations and administrative provisions necessary to comply with Article 9a of Directive (EU) 2016/1164 and that these provisions were to apply as from 1 January 2022.

Spain has just published these rules and they are effective as from 1 January 2022.

Reverse hybrid mismatches definition

A reverse hybrid is generally considered to be a hybrid entity that is treated as fiscally transparent under the legislation of the jurisdiction where it is established but it is treated as fiscally non-transparent under the legislation of the jurisdiction where its members or investors are resident.

The Spanish rules do not include an exhaustive list of entities that are considered look-through for tax purposes. However, there are limited fact patterns which give raise to a look-through entity formed in Spain.

A reverse hybrid mismatch is deemed to exist, and a corrective mechanism will apply under the Spanish implementation of ATAD 2, if the following circumstances simultaneously take place:

  1. An entity that is incorporated or established in Spain, as inferred from the Preamble and the Organisation for Economic Co-operation and Development and EU provisions, is treated as fiscally transparent in Spain; and
  2. One or more associated non-Spanish entities:
    1. Hold or participate, in aggregate and on any day during the year, directly or indirectly 50% or more of the share capital, equity (under the Spanish legislation), profits or voting rights in the Spanish entity; and
    2. are resident in one or more of jurisdictions that view the Spanish entity as a taxable person (blocker).

Where the conditions above are met, the reverse hybrid entity will become a Spanish Corporate Income Tax taxpayer with respect to the following items of (positive) income:

  1. Spanish-source income that is subject and exempt from Spanish Nonresident Income Tax.
  2. Foreign source income that is not subject or is exempt from taxation under a tax that is generally required in the jurisdiction of the payor entity or entities.

The fiscal year will coincide with the calendar year in which such income is obtained.

The remaining items of income obtained by the fiscally transparent entity will be allocated to the members of the look-through entity and will be taxed following the tax rules contained in the Spanish Personal Income Tax Law that are set forth for look-through entities. These tax rules contain certain formal obligations that are also referred to in the Preamble.

Carve-out for Collective Investment Vehicles

According to ATAD 2, the rule for reverse hybrid mismatches shall not apply to a collective investment vehicle (CIV). For the purposes of this Article, CIV means an investment fund or vehicle that is widely held, holds a diversified portfolio of securities and is subject to investor-protection regulation in the country in which it is established.

The implementation of reverse hybrid mismatches has been implemented in the chapter of Spanish Personal Income Tax rules governing look-through entities, conditioning them to the reverse hybrid mismatch rules now contained in the Spanish Corporate Income Tax rules. The chapter of Spanish Personal Income Tax rules governing CIVs remains unchanged.


Multinational groups should review their current structures and transactions to determine the practical impact of this rule, following either a “bottom-up” or a “top-down” approach depending on the anticipated Spanish tax implications and considering all of the jurisdictions involved.

This impact must also be considered in light of the entry into force clause, given the potential retroactive effect to the beginning of the fiscal year and to transactions and arrangements which may have been implemented before these rules were released.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid

Ernst & Young LLP, Spanish Tax Desk, New York


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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