The impact of the Complementary Tax (Pillar 2) is a new tax figure affecting mergers and acquisitions in Spain. Since its implementation by Law 7/2024 of 20 December, this tax is levied on the difference between the 15% and the effective rate of taxation on profits in each jurisdiction.
For those involved in M&A transactions, this tax is not just a technicality. It can change the valuation of a company, generate unexpected costs and complicate the tax structuring of a purchase or merger. Crunching the numbers before and after considering this tax is not the same. Let’s review the main problems it can bring and how to reduce risks.
How Complementary Tax affects M&A
The Complementary Tax applies to corporate groups with a consolidated turnover of 750 million euros in at least two of the last four financial years. What does this mean for companies in M&A? There are three possible scenarios:
- Joining forces, but also taxes. Two companies that separately do not reach 750 million can exceed the threshold by joining forces. In that case, tax comes into play and changes the accounts.
- One step further and under the radar. If a company is already close to that threshold, an acquisition can push it over the threshold and make it subject to the tax. That forces a rethink of the whole operation.
- New rules. If the buyer is already subject to tax, adding a company in a jurisdiction with a tax rate of less than 15% may involve an additional payment. What appeared to be a profitable transaction may not be profitable if the calculation is not done properly.
It is not just a question of accounting, but of strategy. There is no room for surprises in M&A.
Fiscal due diligence. Better to be safe
Due diligence deadlines are often tight, but this tax makes it more important than ever to scrutinise accounts closely. Some points to bear in mind:
- Where every euro is. Not all jurisdictions are taxed equally. If the target company has operations in countries with a rate of less than 15%, it is necessary to calculate what impact this will have on the final bill.
- Information in dribs and drabs. It is not always possible to obtain all the necessary documentation within the due diligence deadlines. If there is no transparency in the numbers, the risk skyrockets.
- Future impact. If after the purchase the structure of the group changes, the tax rules may also change. And that means unexpected additional costs.
Poor planning here can be costly. It is key that the seller has a detailed tax impact analysis ready before entering into negotiations.
How to structure the operation to avoid surprises
Avoiding problems with the Complementary Tax is not just a question of numbers, but of how the operation is designed from the start. Some useful strategies:
- Clarify who pays what. In procurement contracts, it must be precisely defined who bears the fiscal responsibilities. It is not enough to assume this, it must be written down.
- Price adjustments. If due diligence does not provide an accurate picture of the impact of the tax, clauses can be included to adjust the price according to the actual costs after the purchase.
- Find the best structure. In some cases, making the purchase through an entity in a country with a tax rate higher than 15% may reduce the impact of the tax.
An important detail: at present, guarantee insurances do not cover the risks arising from this tax if they have not been identified beforehand. There is no safety net if something goes wrong.
Beyond theory, at Confianz we help companies to reduce risks and design structures that avoid problems with this tax. If you are in the process of M&A and want to avoid surprises, let’s talk and see how to approach the operation with clarity.