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Government to change public company tax deductions in order to cut deficit

Neither the IRPF nor the VAT tax nor the Impuestos Especiales (varying forms of Spanish taxes) were targeted. Ultimately, the Spanish government will make major changes to the Public Company Tax to try and meet its EU-mandated deficit goal (5.3% debt/GDP ratio) for 2012.

Restructuring this tax will not involve an overall increase of Spain's 30% taxation rate, which is one of the highest in the EU, but will be achieved through suppression or cut to tax deductions that are offered to public companies.

Representatives from the Ministry of Finance have confirmed with this periodical that the national government "is not going to raise any taxes in order to increase revenues and trim the national debt," although the Ministry did confirm that the public company tax reform is currently "on the government's work bench."

Spain wants to increase tax revenues through public limited company taxes that have fallen 173% since the crisis began, going from 44.823 billion euros in 2007 to only 16.198 billion in 2010. Currently, the main tax deductions that companies can levy to reduce their tax base are those related to job creation, research and design, technological innovation, export activity, so-called professional spending and commercial sponsorship.

Regarding sponsorship, the Ministry of Finance wants to make deep cuts, because they are "the most utilized by companies, especially big companies, and because they are the only taxes that can be changed without compromising the government's objectives of creating more jobs, sparking research and design and encouraging businesses to compete more internationally."

Making it more difficult for companies to take advantage of sponsorship tax deductions is the best way to increase tax revenues for the state. The deductions are typically a "easy way out" for major companies. That said, we could see a decline in cultural and sporting activities, especially where companies subsidize and promote top Spanish sporting events.

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