What Is Spain’s CFC Regime (TFI)?
Spain’s transparencia fiscal internacional (TFI) regime is an anti-avoidance mechanism designed to prevent Spanish tax residents from deferring taxation indefinitely by accumulating income in low-taxed foreign controlled entities. Rather than waiting for the entity to distribute dividends, the Spanish Tax Agency (AEAT) attributes the passive income earned by the foreign entity directly to the resident shareholder in the year the entity generates it.
The regime is codified in Art. 91 of Law 35/2006 (LIRPF) for individuals and in Art. 100 of Law 27/2014 (LIS) for companies, as amended by Law 11/2021, of July 9, on measures to prevent and combat tax fraud (BOE-A-2021-11473), which transposed the ATAD II Directive (EU Directive 2016/1164).
The Four Cumulative Conditions of Art. 91 LIRPF
TFI is triggered only when all four of the following conditions are satisfied simultaneously:
1. Control ≥ 50%: The taxpayer, alone or together with related entities or family members up to the second degree, holds an interest “equal to or greater than 50 percent of the capital, equity, earnings or voting rights” of the non-resident entity at the close of its fiscal year.
2. Low taxation (effective rate < 75% of Spanish IS): The tax paid by the foreign entity on income of a type identical or analogous to Corporate Tax “is less than 75 percent of the tax that would have applied” under Spanish IS rules. With Spain’s nominal IS rate of 25%, the threshold is an effective rate of 18.75% at the foreign entity level. A single-member LLC that pays no US corporate tax clearly satisfies this condition.
3. Insufficient substance (Art. 91.2 LIRPF): If the entity does not have “the corresponding organization of material and human resources for the conduct of its activity,” all of the entity’s income — active and passive alike — is attributed to the shareholder.
4. Passive income > 15% of total income (Art. 91.3 LIRPF): Where sufficient substance does exist, passive income is specifically attributed if it exceeds 15% of the entity’s total revenues. The categories of passive income are broad and include: income from real property, dividends and equity participations, returns on capital lending, capitalization and insurance operations, intellectual and industrial property, leasing of movable assets, asset-disposal gains, financial derivatives (except hedges of own operations), credit and insurance activities with related Spanish clients, and low-value-added intragroup operations.
What Changed with Law 11/2021: ATAD II Extension
The 2021 reform expanded the scope of attributable income to include income from foreign permanent establishments subject to low taxation. It also replaced the term “tax haven” with “non-cooperative jurisdiction” and eliminated the former exemption for participations held for at least one year. The carve-out for EU/EEA entities with genuine economic activity (Art. 91.14 LIRPF) is preserved, but it does not cover US entities.
TFI vs. the Income Attribution Regime: Which Applies When
Confusion between TFI and the income attribution regime is common, because both result in income being attributed to the shareholder without an actual distribution. The structural difference is clear:
- The income attribution regime (Arts. 86–90 LIRPF) applies when the foreign entity is itself fiscally transparent under the criteria of DGT Resolution BOE-A-2020-2108 (it pays no tax at source and attributes income to partners automatically). No control threshold or low-tax condition is required.
- The TFI regime (Art. 91 LIRPF) applies to entities that are not transparent in their home jurisdiction but satisfy the four anti-deferral conditions. It requires ≥ 50% control and a low-tax environment. Only passive income is attributed (or all income if there is no substance).
For an opaque US LLC (one that does not meet the three BOE-A-2020-2108 criteria), TFI is the regime that could be triggered if the Spanish shareholder holds 50% or more and income is predominantly passive.
Dual Exposure: TFI and GILTI in Parallel
For a US citizen who is also a Spanish tax resident and who controls a foreign entity, a simultaneous dual exposure is possible: the GILTI regime in the US (IRC §951A) and the TFI regime in Spain (Art. 91 LIRPF). Both regimes can attribute the same passive income to the same taxpayer, albeit through different mechanisms and at different rates. The Spain–US tax treaty does not fully resolve this overlap, making this scenario one of the most complex in international tax practice.