11.4.1.3 Types of income to be included in the tax base

Section 2 of article 100 of the LIS establishes that taxpayers will impute the total income obtained by the entity not resident in Spanish territory, when it does not have the corresponding organization of material and personal means for its realization, even if the operations are of a recurring nature.

For these purposes, total income shall be understood as the amount of the taxable base resulting from applying the criteria and principles established in the Corporate Tax Law, as well as in the other provisions relating to this Tax for determining the same.

This section shall not apply when the taxpayer proves that the aforementioned operations are carried out with the material and personal resources existing in an entity not resident in Spanish territory belonging to the same group, within the meaning of article 42 of the Commercial Code, regardless of its residence and the obligation to prepare consolidated annual accounts, or that its constitution and operation respond to valid economic reasons.

However, if the provisions of this section are not applied, the provisions of section 3 of the aforementioned article 100 of the LIS shall apply, according to which only the positive income obtained by a non-resident entity that comes from each of the following sources shall be imputed:

1. Ownership of rural and urban real estate or property rights that fall on them, unless they are assigned to a business activity as established in the Personal Income Tax Law, or transferred for use to non-resident entities belonging to the same group, within the meaning of article 42 of the Commercial Code, regardless of their residence and the obligation to prepare consolidated annual accounts, and are also assigned to an economic activity.

2. Participation in the equity of any type of entity and transfer of equity to third parties, under the terms set forth in sections 1 and 2 of article 25 of Law 35/2006, of November 28, on Personal Income Tax and partial amendment of the laws on Corporate Tax, Non-Resident Income Tax and Wealth Tax.

   Positive income from the following financial assets will not be included:

   • Those held to comply with legal and regulatory obligations arising from the exercise of economic activities.

   • Those that incorporate credit rights arising from contractual relationships established as a result of the development of economic activities.

   • Those incurred as a result of carrying out intermediation activities in official securities markets.

   • Those held by credit institutions and insurance companies as a result of the exercise of their activities, without prejudice to the provisions of letter g) below.

   The positive income derived from the transfer of own capital to third parties shall be deemed to come from the performance of credit and financial activities referred to in letter g) of section 3 of article 100 of the LIS when the transferor and the transferee belong to a group of companies within the meaning of article 42 of the Commercial Code, regardless of residence and the obligation to prepare consolidated annual accounts, and the transferee's income comes, at least 85 percent, from the exercise of economic activities.

3. Capitalization and insurance operations, the beneficiary of which is the entity itself.

4. Industrial and intellectual property, technical assistance, movable property, image rights and leasing or subleasing of businesses or mines, under the terms established in section 4 of article 25 of Law 35/2006.

5. Transfer of the assets and rights referred to in letters a), b), c) and d) above that generate income.

6. Derivative financial instruments, except those designated to hedge a specifically identified risk arising from the performance of economic activities.

7. Credit, financial, insurance and service provision activities carried out, directly or indirectly, with persons or entities resident in Spanish territory and linked within the meaning of article 18 of the Corporate Income Tax Law, insofar as they determine tax-deductible expenses in said resident entities.

It should be noted that only the income that is positive from each of the indicated sources will be included in the tax base. In no case will an amount greater than the total income of the non-resident entity be included.

To calculate the amount of positive income to be included in the tax base, the principles and criteria established in the Corporate Tax Law and in the other provisions relating to this tax for determining the tax base will be applied.

For these purposes, the exchange rate in effect at the close of the financial year of the non-resident entity will be used.

The amount of positive income to be included will be determined in proportion to the participation in the results and, failing that, in proportion to the participation in the capital, equity or voting rights.

Finally, and in accordance with section 5 of article 100 of the LIS, in relation to international tax transparency and for the purposes of said article, it shall be understood that the group of companies referred to in article 42 of the Commercial Code includes multi-group and associated entities in the terms of commercial legislation.