8.4.3.8 2019: Deduction for investment of profits (IB)

The reporting entity will record in code [00549] the amount corresponding to the deduction generated in the tax period, and in code [00888] the amount of the deduction that is subject to application in this declaration.

This deduction was repealed by the Corporate Income Tax Act with effect for tax periods beginning on or after 1 January 2015. However, since the deduction becomes effective when the investment is made, the twenty-fourth transitional provision of the LIS has established in its seventh section the possibility of applying said deduction in the tax periods beginning on or after January 1, 2015, under the terms and conditions established in article 37 of the RDLeg . 4/2004, even if the investment and other requirements occur in tax periods beginning on or after that date.

Scope

The following are entitled to this deduction:

Entities that meet the requirements established in article 108 of the RDLeg. 4/2004 and are taxed in accordance with the tax scale provided for in article 114 of said regulation.
Entities that pay taxes in accordance with the tax scale provided for in the Twelfth Additional Provision of the Royal Decree-Law. 4/2004 for maintenance or creation of employment.

Requirements

The deduction will be applied to profits obtained in the year, not including the accounting for Corporate Tax, which are invested in new elements of tangible fixed assets or real estate investments, provided that they are assigned to economic activities and the conditions established in article 37 of the Royal Decree-Law are met. 4/2004.

Investment in new elements may also be made through a financial leasing contract.

As a general rule, the investment must be made within the period between the start of the tax period in which the profits subject to investment are obtained and the two subsequent years. Exceptionally, the taxpayer may request the tax authorities to approve a special investment plan.

The investment shall be deemed to have been made on the date on which the assets are made available, including those that are the subject of financial leasing contracts referred to in section 1 of the Seventh Additional Provision of Law 26/1988, of July 29. However, in the latter case, the deduction will be conditional, in a resolutory manner, on the exercise of the purchase option.

Entities applying this deduction must set aside a reserve for investments, for an amount equal to the deduction base, which will be unavailable as long as the assets in which the investment is made must remain in the entity.

The investment reserve must be provided from the profits of the year whose amount is subject to investment.

The assets subject to investment must remain in operation in the entity's assets, except in the case of justified loss, for a period of 5 years, or during their useful life if it is less.

However, the deduction will not be lost if the transfer of the assets subject to investment occurs before the end of the period indicated in the previous paragraph and the amount obtained or the net book value, if lower, is invested in the terms established in article 37 of the Royal Decree-Law. 4/2004.

Until the deadline established for maintaining the investment is met, the taxpayer must include in its annual accounts information on: the amount of the profits eligible for the deduction and the year in which they were obtained; the unavailable reserve that must be allocated; Identification and amount of the items purchased; and the date or dates on which the elements have been acquired and assigned to economic activity.

Failure to comply with any of the requirements set out in article 37 of the RDLeg. 4/2004 will determine the loss of the right to this deduction, and its regularization in the manner established in article 137.3 of the aforementioned regulation.

Deadline for investment

Regarding the period of time that the taxpayer has to make the investment, article 37.2 of the RDLeg. 4/2004 establishes that investment in assets related to economic activities must be made within the period between the beginning of the tax period in which the profits subject to investment are obtained and the two subsequent years or, exceptionally, in accordance with a special investment plan approved by the tax authorities at the proposal of the taxpayer.

In this way, in addition to the two-year period, there is the possibility of a special investment period approved by the Tax Administration, taking into account article 37.3 of the RDLeg. 4/2004 establishes that the deduction is applied to the entire amount of the tax period in which the investment is made; for investments subject to longer periods, this deduction could continue to be applied.

Deduction base

It will be the result of applying to the amount of profits for the year, without including the accounting of the Corporate Tax, a coefficient (with two decimal places, rounded by default) determined by:

In the numerator: the profits obtained in the year, not including the accounting of the Corporate Tax, reduced by the income or revenue that is subject to exemption, reduction, bonus, deduction under article 15.9 of the RDLeg. 4/2004 or deduction for double taxation, exclusively in the exempt, reduced, bonus or deductible part of the tax base, or that has generated the right to deduction in the total amount.
In the denominator: profits obtained in the year, excluding the accounting for Corporate Tax.

The resulting coefficient will be taken with two decimal places rounded by default.

Amount of deduction

The deduction is determined by applying a percentage to the deduction base that will vary depending on the corporate tax rate applied to the entity:

10% in the case of entities that meet the requirements established in article 108 of the RDLeg. 4/2004 for small entities and apply the tax scale provided for in article 114 of said regulation.
5% in the case of entities that pay taxes according to the tax scale provided for in the Twelfth Additional Provision of the Royal Decree-Law. 4/2004 for cases of maintenance or creation of employment.

The deduction will be applied to the entire amount corresponding to the tax period in which the investment is made.

Incompatibilities

The application of this deduction is incompatible with the application of freedom of amortization, with the deductions to encourage the performance of certain activities and with the deduction for investments regulated in article 94 of Law 20/1991, of June 7, modifying the fiscal aspects of the Economic Fiscal Regime of the Canary Islands, with the Reserve for investments in the Canary Islands regulated in article 27 of Law 19/1994, of July 6, modifying the Economic and Fiscal Regime of the Canary Islands.