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Form 200. Corporate Income Tax Declaration 2018

4.2.47 Code 00370 exemption on dividends or profit shares of resident entities (Arts. 21.1 LIS)

Section 1 of Article 21 of the LIS establishes that dividends or profit shares of entities will be exempt when the following requirements are met:

  1. That the percentage of participation, direct or indirect, in the capital or in the equity of the non-resident entity is at least 5% or that the acquisition value of the participation is greater than 20 million euros.

    • The corresponding share must be held uninterruptedly during the year prior to the day on which the profit to be distributed becomes due or, failing that, it must be held subsequently for the time necessary to complete said period. For the calculation of the term, the period in which the participation has been held uninterruptedly by other entities that meet the circumstances referred to in article 42 of the Commercial Code to form part of the same group of companies is also taken into account, regardless of the residence and the obligation to prepare consolidated annual accounts.

    • In the event that the participating entity obtains dividends, profit shares or income derived from the transfer of securities representing the capital or equity of entities in more than 70 percent of its income, the application of this exemption with respect to said income will require that the taxpayer have an indirect participation in those entities that meets the requirements indicated in article 21.1.a) of the LIS. The aforementioned percentage of income is calculated on the consolidated result of the fiscal year, when the directly controlled company is the parent company of a group, according to the criteria established in article 42 of the Code of Commerce, and draws up consolidated annual accounts. Nevertheless, an indirect stake in second and subsequent-level subsidiaries must respect the minimum percentage of 5%, unless said subsidiaries fulfil the circumstances referred to in article 42 of the Code of Commerce to form part of the same group of companies as the directly controlled company, and draw up consolidated accounting statements.

      The requirement set out in the previous paragraph shall not apply when the taxpayer proves that the dividends or profit shares received have been included in the tax base of the directly or indirectly owned entity as dividends, profit shares or income derived from the transfer of securities representing the capital or equity of entities without having the right to apply an exemption or deduction regime for double taxation.

  2. Additionally, this is the case with the own capital or funds of non-resident companies in Spain, where the controlled company has been subjected to and not exempt from an identical or similar foreign tax to this one at a nominal rate of, at least, 10% during the fiscal year in which the profits being distributed, or in which a share is held, have been obtained, regardless of the application of any kind of withholding, allowance, reduction or deduction on such profits.

    • For these purposes, foreign taxes that have been intended to tax the income obtained by the participating entity will be taken into account, regardless of whether the object of the tax is the income itself, the revenue or any other indicative element thereof.

    • This requirement will be considered fulfilled when the participating entity is resident in a country with which Spain has signed an agreement to avoid international double taxation, which is applicable to it and which contains an information exchange clause.

    • In no case will this requirement be deemed to be met when the participating entity is resident in a country or territory classified as a tax haven, except when it is resident in a Member State of the European Union and the taxpayer proves that its incorporation and operation respond to valid economic reasons and that it carries out economic activities.

    In the event that the non-resident company obtains dividends, shares in profits or income derived from the transfer of securities that represent the entities' own capital or funds, the application of this exemption with respect to said income will entail that the requirements in this point are fulfilled by, at least, the controlled company.

In the event that the participating entity, whether resident or non-resident in Spanish territory, obtains dividends, profit shares or income derived from the transfer of securities representing the capital or equity of entities from two or more entities in respect of which only one or some of them meet the requirements indicated in letters a) and b) above, the application of the exemption will refer to that part of the dividends or profit shares received by the taxpayer in respect of entities in which the aforementioned requirements are met.

The exemption provided for in this section shall not apply to the amount of those dividends or shares in profits whose distribution generates a tax-deductible expense for the paying entity.

For the purposes of applying this article, in the case of distribution of reserves, the designation contained in the corporate agreement shall be taken into account and, failing that, the last amounts paid to said reserves shall be considered applied.

According to the provisions of article 21.2 of the LIS:

  1. Dividends or profit shares will be considered those derived from securities representing the capital or equity of entities, regardless of their accounting consideration.

  2. The remuneration corresponding to participating loans granted by entities that form part of the same group of companies according to the criteria established in article 42 of the Commercial Code, regardless of residence and the obligation to prepare consolidated annual accounts, will be considered as exempt dividends or profit shares, unless they generate a tax-deductible expense in the paying entity.

  3. The exemption provided for in article 21.1 of the LIS will not apply in relation to dividends or profit shares received, the amount of which must be delivered to another entity on the occasion of a contract that deals with the securities from which they originate, recording an expense to that effect.

The entity receiving said amount under the aforementioned contract may apply the exemption provided for in the aforementioned section 1 to the extent that the following requirements are met:

  1. Keep the accounting record of said securities.

  2. Prove that the dividend has been received by the other contracting entity or an entity belonging to the same group of companies of either entity, in accordance with the terms established in article 42 of the Commercial Code.

  3. That the conditions established in the previous section for the application of the exemption are met.

Settings:

  1. Resident entities.

    In application of the provisions of articles 21.1 and 21.2 of the LIS, taxpayers who receive dividends or profit shares from entities resident in Spanish territory must include in key [00370] “Exemption on dividends or profit shares of resident entities (art. 21.1 LIS)” on page 12 of form 200, the amounts corresponding to the decreases in the accounting result that arise from the application of the exemption on the receipt of dividends or profit shares from entities resident in Spanish territory, provided that the requirements of article 21.1 of the LIS are met.

  2. Non-resident entities (See code 02181).