4.2.39 Keys 00363 and 00364 adjustments for the limitation on deductibility in financial expenses (Art. 16 LIS)

Article 16 of the LIS establishes a series of limits on the deductibility of financial expenses as detailed below. In relation to this article, it is necessary to take into account the Resolution of July 16, 2012 ( BOE of July 17) issued by the General Directorate of Taxes, in order to delimit the interpretative criteria in the application of the limitation on the deductibility of financial expenses regulated in the then current article 20 of RDLeg . 4/2004.

Net financial expenses will be deductible up to a limit of 30 percent of the operating profit for the year.

For these purposes, the following must be taken into account:

• Net financial expenses shall be understood as the excess of financial expenses with respect to the income derived from the transfer to third parties of own capital accrued in the tax period, excluding those expenses referred to in letters g), h) and j) of article 15 of the LIS.

• Operating profit will be determined from the operating result of the profit and loss account for the year determined in accordance with the Commercial Code and other accounting regulations:

  • Eliminating the amortization of fixed assets, the allocation of non-financial fixed asset subsidies and others, the impairment and results from disposals of fixed assets, and

  • Adding the financial income from participations in equity instruments, provided that they correspond to dividends or participations in profits of entities in which either the percentage of participation, direct or indirect, is at least 5 percent, or the acquisition value of the participation is greater than 20 million euros, except that said participations have been acquired with debts whose financial expenses are not deductible by application of article 15 h) of the LIS.

When the net financial expenses for a one-year tax period do not exceed 1 million euros, they will be tax deductible without being subject to the limit of 30 percent of the operating profit for the year. And when the tax period has a duration of less than one year, the amount of net financial expenses of the same that are tax deductible without said limit will be the result of multiplying 1 million euros by the proportion of the duration of the tax period with respect to the year.

Net financial expenses not deducted may be deducted in subsequent tax periods, together with those of the corresponding tax period, and with the limit of 30 percent referred to above. In the event that the net financial expenses of the tax period do not reach said limit, the difference between this and the net financial expenses of the tax period will be added to the limit, with respect to the deduction of net financial expenses in the tax periods that end in the 5 immediate and successive years, until said difference is deducted.

The same does not apply to the amount of 1 million euros, since if the net financial expenses for a financial year do not reach this amount, the difference between 1 million euros and the net financial expense deducted in the tax period cannot be applied in future tax periods. However, the amount of 1 million euros can be reached with the net financial expenses of the tax period and with financial expenses pending deduction from previous tax periods up to that amount.

For the purposes of the provisions of article 16 of the LIS in relation to the limitation on the deductibility of financial expenses, section 5 of said article establishes that financial expenses derived from debts intended for the acquisition of shares in the capital or equity of any type of entities will be deducted with the additional limit of 30 percent of the operating profit of the entity that made said acquisition, without including in said operating profit the profit corresponding to any entity that merges with it in the 4 years following said acquisition, when the merger does not apply the special tax regime provided for in Chapter VII of Title VII of the LIS. These financial expenses will also be taken into account in the limit referred to in section 1 of this article.

Non-deductible financial expenses resulting from the application of the provisions of this section shall be deductible in subsequent tax periods within the limit provided for in this section and in section 1 of this article.

The limit provided for in this section shall not apply in the tax period in which the shares in the capital or equity of entities are acquired if the acquisition is financed with debt for a maximum of 70 percent of the acquisition price. Likewise, this limit will not apply in subsequent tax periods provided that the amount of that debt is reduced, from the time of acquisition, by at least the proportional part corresponding to each of the following 8 years, until the debt reaches 30 percent of the acquisition price.

Net financial expenses charged to partners of entities that pay taxes in accordance with the provisions of article 43 of the LIS will be taken into account by them for the purposes of applying the aforementioned limit and will not be deductible by the entity that generated them.

The limitation on the deductibility of financial expenses will not apply:

1. To credit and insurance entities under the terms established in article 16.6 of the LIS.

   For these purposes, those entities whose voting rights correspond, directly or indirectly, entirely to them, and whose only activity consists of the issue and placement on the market of financial instruments to strengthen the regulatory capital and financing of such entities, will be treated as credit institutions.

   The same treatment will also be applied to mortgage securitisation funds, regulated by Law 19/1992, of 7 July, on the Regime of Real Estate Investment Companies and Funds and on Mortgage Securitisation Funds, and asset securitisation funds referred to in Additional Provision Five.2 of Law 3/1994, of 14 April, which adapts Spanish legislation on credit to the Second Banking Coordination Directive and introduces other amendments relating to the financial system.

2. In the tax period in which the entity is dissolved, unless this is the result of a restructuring operation.

In accordance with all of the above, in key [00363] (increases) the amount of financial expenses of the tax period, which are not tax deductible in the same, must be included.

And in subsequent tax periods, when the tax deduction for financial expenses pending to be applied is applied, they will be integrated into key [00364] or the equivalent at the time, of decrease.