The European-American Chamber of Commerce

European Country Briefing: Spain Welcome: Ms. Maria Fernandez, Trade Commissioner, Trade Commission of Spain in Chicago Mr. Ignacio Mezquita, Director , Invest in Spain
Sponsors: Presenting Sponsor: Host Company:

International Corporate Tax

kpmg.es

c | Section or Brochure name Tax 1 |International Corporate

How a multinational enterprise handles taxes can be one of the most daunting and complex business issues it faces today. Fundamental business decisions, such as were to locate, choice of entity, and how to nance global operations, can have a critical impact on a multinationals tax risk prole, global effective tax rate, and cash tax posture. And tax executives at these companies are often challenged on many fronts at once frequent changes in tax law in multiple jurisdictions, shifts in supply chain structure, growing compliance and internal control requirements, and greater scrutiny of tax decisions by increasing range of regulators. KPMG Madrid International Corporate Tax (ICT) professionals provide an array of international tax planning services and their experience to help our multinational clients face these challenges. We help our clients anticipate and understand the potential short- and long-term consequences of tax planning decisions at a global level and in the context of their wider business objectives. We think beyond the present and beyond borders. Our solid understanding of rapidly changing cross-border business practices and our extensive knowledge and experience of the applicable tax around the world allows us to be proactive and forward thinking. Additionally, our global mindset enables us to help clients implement tax-related business that can deliver real value to their business.

International Corporate Tax | 2

Why choose KPMG?

Thinking Global, Acting Local. With both, an international perspective and locally based personnel, we provide practical tax advice to help clients establish new ventures, structure cross-border transactions, and maintain compliance with tax and trade regulations while maintaining an eye on the overall potential impact on the global organization. Life Cycle Perspective. We can help at any stage of your companys life cycle-whether you are setting up a distribution network; establishing new manufacturing operations in foreign countries through subsidiary companies, joint ventures, or contractual arrangements; restructuring current operations; or seeking tax-efcient exits from foreign markets. Deep Industry Knowledge. ICT Madrid maintains a focus around key industries to help keep your business up-to-date on the international tax issues facing your industry, as well as understanding the trends and leading practices that are shaping your industrys future. - Consumer markets (retail, food and drink, consumer goods) - Financial services (banking and nance; insurance; investment management; building, construction, and real estate)

- Healthcare and pharmaceuticals - Private equity - Industrial markets (energy, natural resources, chemicals, industrial products, transportation, automotive, aerospace and defense) - Information, communications, and entertainment (electronics, software and business services, communications, media) Multidisciplinary Approach. Our international tax professionals collaborate closely with the merger and acquisition teams to provide our clients with extensive advice in addition to a joint and coordinate service in these special situations.

3 |International Corporate Tax

International Corporate Tax Services

ICT Madrid professionals have the experience and technical skills to provide advice on many aspects of international taxation from both inbound and outbound perspectives. Our services include, inter alia, assistance regarding:

Inbound & Outbound Tax planning Planning for the suitable and most effective inbound and outbound structures that can be aligned with companys businesses Enhancement of existing international tax structures Acquisition and disposition planning Planning for tax-efcient cross-border renancing of operations Planning for location or relocation of intellectual property, functions, and risks Planning for changes in tax law that can affect already implemented structures Planning for private equity funds at all stages Planning for location of holding functions and risks Tax modeling of inbound and outbound investments Planning for restructuring impaired companies

Risk and Tax Controversy Management Local tax rulings assistance

Financing and capital location Capital location and cash repatriation planning Cash ow planning Hybrid instruments and companies Enhancement of international tax structures

International Corporate Tax | 4

Who are we?

International tax practice comprises a team of professionals from different elds of training allowing the development of a methodical, efcient and valuable service in the area of international tax planning and, tax and legal consequences resulting from it. Our extensive international network of tax specialists allows us to provide a coordinated global advice to our customers with international activity, identify existing tax planning opportunities and identify risks of incurring in an excessive taxation. The complexity of international transactions and constantly changing tax laws of different countries requires full commitment of a team of international tax professionals with the support of a major international network that allows a comprehensive advice. We work intensively with the Mergers and Acquisitions department both in the design of structures in the acquisition and in the design of integration strategies, as well as in the previous stages of due diligence and strategic approach, to provide a more comprehensive market advice to the client.

Contacts KPMG in Spain Victor Hernn Carrillo ICT Partner vhernan@kpmg.es Jos Antonio Tortosa Ramos ICT Partner jtortosa@kpmg.es Carlos Marn Pizarro ICT Partner carlosmarin@kpmg.es Ricardo Lpez Rubio ICT Director rlopezr@kpmg.es

The information contained herein [or insert the name of the publication, newsletter, or other mailing] is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2011 KPMG Abogados S.L., a limited liability Spanish company, is a subsidiary of KPMG Europe LLP and a member rm of the KPMG network of independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. KPMG, el logotipo de KPMG y cutting through complexity son marcas registradas o comerciales de KPMG International.

Business opportunities in Spain.

Ignacio Mezquita Chief Strategy Officer

1

The worlds 12th largest economy: 1.4 trillions USD

GDP comparison of major economic regions, USD billions, 2010
EU 27: 16,282 Germany: 3,316 NAFTA: 17,271

East Asia: 15,075

USA: 14,658 Japan: 5,459 Canada: 1,574 Mexico: 1,039

The 5th largest economy in the EU

France: 2,583

UK: 2,247

Italy: 2,055

Spain: 1,410

ASEAN: 1,852

NIEs: 1,886

71% of EU27 GDP

China: 5,878

Russia: 1,465

Brazil: 2,090
Source: IMF, 2011

India: 1,538

BRICs: 10,971 2

Spanish world leading companies

The leading European telecom integrated operator The number one bank in the eurozone. The energy company that built more renewable capacity in 2010 than any other utility in the world, with total capacity of 1,780 megawatts (MW). 13 of the 15 major North American oil and gas companies have Spanish management, control and information systems installed. Three of every five flights are controlled using Spanish air navigation systems.

Spanish world leading companies

Seven of the worlds top ten transport infrastructure concession companies are Spanish
(Ranking of Public Works Financing)

50% of the worlds infrastructure concessions are held by Spanish Companies, including Panama Canal Expansion.

Pilgrim Express: a consortium led by Renfe and Adif will built and operate for 12 years the high speed railway Mecca-Medina.
(Ministerio de fomento)

Correcting imbalances
The net borrowing of 11,4% of GDP in 2008Q-1 has come down to 2,9% in 2011-Q-2.
The current account deficit is adjusting due to export performance: Exports react to downward pressure on domestic prices and labour cost moderation.

Correcting imbalances: reforms

The combination of structural reforms and the correction of macroeconomic imbalances with the existence of a competitive body of firms and high labour potential will sustain a balanced growth path in the future 6

Correcting imbalances: public finance

The deficit of the public administrations will be reduced in 2.011 to 6% of GDP in the way of the target of reaching to 3% of GDP in 2013.

Estimated at 60% at end 2010, Spains debt to GDP ratio is 24 percentage points lower than the Euro Area average.
Constitutional change: budget stability limiting structural deficit and debt. New spending rule: public spending linked to economic growth.

Correcting imbalances: financial sector

Restructuring: The number of savings banks has decreased from 45 to 15 in less than two years.

Solvency : Law to Strengthen Capital requirements with a general minimum 8% of RWA and 10% RWA for entities with problems to access markets. Spanish deposit institutions have reinforced their core capital

European Stress Test: 25 Spanish banks subject to the tests, (93% of the Spanish financial sector assets). European bank recapitalization plan : Under new rules outlined by the EU (October 2011), Spanish Banks will need 26 billions in additional capital. According to the Spanish Central Bank, they will comply with the requirements through capital markets, without public support

Spain: a FDI profile

Foreign Investors show confidence in Spain
Spain holds the 7th largest accumulated inward FDI stock (USD 614,473 million), namely, 3.2% of global FDI stock.
In 2010 FDI flows to Spain grew by more than 40% with respect to 2009 (-7% OECD and -20% EU).
FDI to Spain (2002-2010)

Source: Spanish Investment Register, 2011.

These figures are particularly positive if we compare them with the drop in direct foreign investment experienced by developed countries .

Spain: a FDI profile

A highly open foreign investment legal framework
According to the OECD, Spain stands out as one of the economies with less FDI restrictions.
2010 FDI Restrictiveness Index by Country

As a general rule, foreign investments are subject only to notification after the investment has been made.
Exchange controls and capital movements are fully liberalized and in all areas there is complete freedom of action. Foreign investors are treated equal as domestic investors by Spanish rules in terms of Business Climate regulations. Economic bilateral framework: Agreement to Avoid Double Taxation since 1990.

1 2 3 4 5 6 7 8 9 10 29 30 38

Portugal Slovakia Romania Netherlands Spain Estonia Germany Argentina Finland Greece Switzerland US Canada

OECD 2010 FDI INDEX 0,007 0,007 0,008 0,015 0,021 0,022 0,023 0,025 0,032 0,039 0,083 0,089 0,393

Source: OECDs FDI RESTRICTIVENESS INDEX: 2010 UPDATE

Spain: a FDI profile

One of the global largest investors
Spain is the 10th largest investor in terms of stock worldwide (USD 660,159 million). In 2006-2009 Spanish FDI in Latin America accounted for 10% of the total, placing Spain as 2nd largest investor in the region. In 2010 Spain was the 4rd largest investor in the region, after USA, Netherlands and China.
Latin America and the Caribbean: origin of FDI, 2006-2009
Other 31%
USA 25%

Latin America and the Caribbean: origin of FDI, 2010

Other 29% USA 17% Netherlands 13% China 9% UK 4% Canada 4% Spain 4%

Latin America Caribbean 8% Financial Centers 10%

Spain 10% UK 4% Netherlands Canada 5%

5%
Caribbean Financial Centers 7%

Latin America 10% Japan 3%

Japan 2%
Source: ECLAC, 2011.

Spain: a FDI profile

Spanish companies position makes it possible to access key sectors in high growth Latin American economies (ICT, Energy, finance, infrastructures, etc.) 30% of turnover of Spanish companies included in the IBEX 35 index comes from Latin America. Nearly 50% of the biggest Spanish firms that are present in LatAm consider that their revenue in America might catch up with their income in Spain in the next 3 years. Only 8% of the largest Spanish firms with presence in LatAm will stop their investment there in 2011. 35% will rely on organic growth investment and 48% could also consider new acquisitions.

Spanish Companies on the way to further geographical diversification.

Spain: a FDI profile

79 treaties to avoid double taxation with countries that represent more than 95% of the worlds GDP.
LATIN AMERICA 11 Agreements to Double Taxation. NORTH AFRICA 4 Agreements to Avoid Double Taxation.

Avoid

19 Agreements for Protection and Promotion of Reciprocal Investments

5 Agreements for Protection And Promotion Of Reciprocal Investments

Foreign-securities holding entities (ETVEs) tax system is one of the most competitive in the EU. The ETVE is a legal Spanish holding company, which is not taxed on its foreign-source income and/or gains, on the income it distributes to its shareholder, nor on the gains arising when the shareholder sells its stake in the holding company.

Business climate

Human capital

Infrastructures

Taxes

Incentives

Quality of life

Spain has 3 of top 20 Business School in the world: ESADE, IE Business School and IESE

Highly skilled labor force Spain ranks 4rd in Europe in number of persons with a scientific/technical tertiary education, just behind Germany, UK and France.
Human Resources in Science and Technology with tertiary education

12,000,000 10,000,000

20%

Ratio HRST / Population

15% 8,000,000

HRST

6,000,000 4,000,000

10% 5%

2,000,000
Germany Denmark Romania Poland Turkey Bulgaria Czech Republic Portugal Lithuania UK Belgium Sweden Greece Switzerland Slovenia Estonia Finland Hungary Slovakia Cyprus Luxembourg Netherlands Austria Iceland France Spain Latvia Malta Italy

0%

Source: Eurostat, 2009.

HRST Aged 25-65

Ratio

Business climate

Human capital

Infrastructures

Taxes

Incentives

Quality of life

Railway Network

Highway Network

Spain is the 2nd largest worldwide in High-Speed Network and the European leader with 2,665 km.

Spain is the 1st largest EU highway network with 14,689 km (9,131 miles).

Main Port Facilities

Airport Network

Excellent maritime connections, with 46 ports on both the Atlantic and the Mediterranean coasts, putting Spain in 4th, with 3 ports among the Top-10 ports of containers in Europe (Valencia, Algeciras and Barcelona).

250 airlines have scheduled flights, operating out of the countrys 47 airports, being Madrid and Barcelona the main hubs.
15

Business climate

Human capital

Infrastructures

Taxes

Incentives

Quality of life

One of the lowest VAT within EU countries (18%), with a reduced VAT of 8%. Only the tax rate of Cyprus and Luxembourg are lower (15%). Favourable tax rate on corporate income (30% and 25% for SMEs), below USA and OECD average.

An attractive allowance and deduction system in corporate tax (16,7% effective rate).
Freedom to amortize investments in new assets and real estate, which is to extend from 2011 to 2015.

40 35

30 25 20
15 10 5 0

The Tax System is highly beneficial for foreign workers, as they can pay taxes at a fixed rate of 24% up to maximum of 600.000 .

Source: Invest in Spain, from data provided by Eurostat, 2010.

Business climate

Human capital

Infrastructures

Taxes

Incentives

Quality of life

Favourable fiscal system for foreign investors and R+D activities:

And the 2nd most favourable fiscal incentives for R&D among OECD countries for large companies and SMEs.
Rate of Tax Subsidies for R&D, 2008

Note: Tax subsidies are calculated as 1 minus the B index. For example, in Spain, 1 unit of R&D expenditure by large firms results in 0.349 unit of tax relief. Source: Science, Technology and Industry, Outlook. OCDE, 2010.

In addition, in 2008 the Spanish CIT law introduced a patent box type of incentive. Under the new regime 50% of revenues arising from the letting of the right to use certain qualifying intellectual property (IP) rights are tax exempt.

Business climate

Human capital

Infrastructures

Taxes

Incentives

Quality of life

Business climate

Human capital

Infrastructures

Taxes

Incentives

Quality of life

Friendly environment for expats

Spain is the 1st country in Europe in terms of quality of life for expats.

Overall Experience Score Spain France 0.59 0.58 0.53 0.52 0.52 0.48 0.44 Rank 1 (4) 2 (6) 3 (10) 4 (11) 5 (14) 6 (18) 7 (20)

Overall Setting up Score 0.6 0.6 0.49 0.52 0.53 0.45 0.49 Rank (10) (11) (17) (15) (13) (21) (19)

Overall Integration Score 0.81 0.79 0.65 0.72 0.68 0.61 0.69 Rank (1) (2) (13) (6) (10) (19) (9)

Overall Quality of Life Score 0.53 0.52 0.5 0.47 0.47 0.45 0.37 Rank (6) (7) (8) (12) (13) (17) (23)

EUROPE

Switzerland Germany Belgium Netherlands United Kingdom

() Overall ranking

Source: HSBC Bank International, Expat Explorer Survey 2010.

19

Business opportunities

Renewable energies

Biotechnology, Healthcare, & Life Sciences

ICT Aerospace
Automotive & Transport Environment & Water treatment

Logistics & Infrastructure

Invest In Spain: Your Business Facilitator

ICT Industry
The ICT market in Spain has increased over the last 7 years by 31.9%. It already represents close to 6% of the Spanish GDP (Source: AETIC)

Innovation investment (R&D&I) in the ICT sector has almost doubled (x1.9) over the period 2003-2009. ICTs investment in R&D accounts for 40% of the total amount invested by the private sector in Spain. There are over 20,600 ICT companies already operating in Spain, employing over 418,600 workers.
ICT Market ( million)
CAGR: 2.2%
Professional Electronics Electronic Components Consumer Electronics Telecom. Equipment

ICT Sector Turnover 2010 ( million)

Other

Telecom. Services

9.2% 2.3% 2.7% 4.5%

4.6%

Digital Content

10.9%

88 211 M
18.8%

47.0%

Information Technologies
Source: ONTSI, Observatorio Nacional de Tecnologas de la Informacin y SI Source: AETIC, 2011

22

Biotechnology
Biotechnology

Participation in the international scientificis the 5th worldwide in Biochemistry and Spain arena

Applied publications Biology. Spain produces 2.5 % of the worlds scientific Molecular according to The British Royal Society. 9th world scientific power and 5th by scientific production in the EU15.

Spain is 5th in clinical testing in the EU27.

Growing number of biocompanies and dynamic creation of jobs rd

Spain is 3

in the world by number of experimental

During 2000-2008 the number of biotech companies (BC) rose 239%. Fields in agro-biotech. In 2009, 1.095 companies involved in biotech activities (+16,2%) and 399 strictly biotech (+30,8%). 148.648 employees (+37,2%) and 21.673 R+D activities dedicated (+10.2%).

Spain is one of the most dynamic European country in this area: 942 enterprises involved in biotech activities and

305 strictly biotech.

Turnover: over 31.1 billion and investment of over 460.65 million in research and development (R&D).

5th in Biochemistry and Applied Molecular

Biology

Leading pharmaceutical & biotech multinationals

Source: ASEBIO 2010 Report and : Relevance of Biotechnology in Spain 2009, Genoma Espaa, INE

are already successfully located in Spain

Biotechnology
Launches of products and services in the biotech market in 2010 The healthcare sector accounted for 62% of market launches during 2010.
However the industrial processes segment will grow sharply in the coming years, mainly due to the boost in bioenergy.

Source: ASEBIO 2010 Report

Most candidate drugs in development phase are targeting oncology.

They are followed at a distance by neuroscience and infectious diseases.

Renewable Energies
R&D: Spain has an important role to play at the Renewable Energy league with strong support from public and private entities at all the stages: R&D centres with vast experience and continuous participation in Renewable Energies development and promotion. National and International companies presence throughout the value chain of the different Renewable Energies. Industrial and professional experienced companies. network of highly qualified people and

R+D centers
CENER

INTERNATIONAL COMPANIES

PUBLIC ENTITIES & ASSOCIATIONS

MITyC IDAE CNE APPA AEE ASIF PROTERMOSOLAR

ITER
CIEMAT CSIC IES ISFOC PSA Universities .

Aeroespace
The Spanish Aeronautics Industry is the 5th in Europe in terms of turnover (5.6 billion in aeronautics in 2008) and employment (<36,000 employees). Multinational players have developed R&D Centers in Spain.

R&D:

The investment in R&D activities reached 800 M in year 2009 (13.5% of the industry turnover and 9% of the private investment in R&D in Spain).
Government support:

Strategic Plan for the Aeronautical Industry: with a budget over 550 M until 2016.
Strategic Space Plan: with an average contribution to the ESA of 215 M per year. Creation of several public R&D focused in the aerospace industry. centers

Environment, water and desalination

Spain is the 1st producer of desalinated seawater in Europe and America. Spanish companies are leaders in reverse osmosis technologies.
Around 2,000 companies operating in the environmental sector in Spain

Interesting cluster

More than 900 desalination plants in Spain International Expertise in constructing desalination plants (Befesa, Cadagua, Acciona)

R&D projects for emission reductions, river restoration and numerous other areas of environmental concern.

R&D

In 2009, the European Unions Life+ Programme named five winners in its Best waste management projects category and two of these were Spanish.

Research centres actively involved in desalination:

CEDEX (Study and Experimentation Centre) Canarian Technologic Institute ProDTI, University of Seville CENTA Fundacin Investigacin e Innovacin para el Desarrollo Social

Attractive market

Government Support: 11 billion Euros for environmental and agriculture in 2011 and will offer incentives for priority activities.

Invest In Spain: Your Business Facilitator

Greenfield investment: INVEST IN SPAIN is an SOE aimed at supporting foreign companies seeking to set up or expand their business in Spain.
Renewable energies
Aerospace

Automotive & Transport

ICT

Logistics & Infrastructure

Environment & Water treatment

Biotechnology, Healthcare, & Life Sciences

It provides tailor-made services and is currently developing some new projects. IiS ranks 9th among the best IPAs according to World Banks Global Investment Promotion Benchmarking.

Dissemination of information regarding specific business opportunities: Infrastructure Plan, Saving Banks, Real Estate, Ports, etc. Follow-up of business climate in Spain and of related international indicators.

Invest In Spain: Our services

Information & Tools

Advisory Support Facilitation of Administrative processes

Partner search Location search Personalized cost evaluation of your planned investment Immigration services

Support for implementation

Economic, commercial and social information about Spain Property market Human resources Utilities Investment aid & incentives Tax Legislation Practical guidelines for administrative procedures Information about regions Publications Newsletter Useful contacts

Start-up aid Organization of visits to potential locations and regions Support to get an Investment aid & incentives Institutional contacts Contacts with business networks, chambers of commerce and other private bodies. Preparation of reports and studies. Organization of workshops and expert seminars Specialized team dedicated to serving the needs of your business.

Invest In Spain: Investor Network: the opportunity

What it is

The Investor Network is an initiative by INVEST IN SPAIN which aims to connect Private Equity, Venture Capital and Corporate finance firms from all over the world with selected projects in Spain with high growth potential requiring investment above and beyond 0.5 million.

Objectives

Attract capital investment to Spain and create an international

investment community in Spain.

Connect Spanish and international investors and encourage coinvestment.

Increase the capital available to companies based in Spain,

compensating thus current capital restrictions.

Support companies and entrepreneurs in their set-up and

growth/expansion projects in Spain.

Invest In Spain: Immigration Services

Foreign companies looking to invest in Spain.

IMMIGRATION DEPARTMENT :

SITUATIONS

Foreign companies and institutions engaged in investment projects in Spain and requiring initial legal advice as well as institutional contacts can get in touch with us. We deal with large corporations, SMEs, microcompanies and institutions.
Situations: Self-employed residence and working visa or own company with residence in Spain Mergers, acquisitions, shareholdings or joint ventures with a Spanish company that involve residence in Spain Mergers, acquisitions, participations or joint ventures with a Spanish company that do not involve residence in Spain Business trips Work permits: employees Scientist and researchers permits Residence without working Family reunification and permits NIE (Foreigners Identification Number)

Invest in Spain To sum up

Spain ranks among the most open economies to foreign investment of the world.

Investing in Spanish companies makes it possible to access both leading European companies in several fields, as well as key sectors of high growth Latin American economies.
Spain offers a very competitive legal framework for investors doing business in Europe and Latin America, in use by significant multinational companies, including American ones. INVEST IN SPAIN provides foreign companies with free valueadded and customized services to aid the establishment and expansion of their investments in the country

We take your business further Thank you

Thank you imezquita@investinspain.org