4.2 Taxable base

The taxable base (TB) is the amount of income for the tax period reduced by the negative tax bases from previous years. The calculation of the BI has particularities in tax regimes such as those of cooperatives or non-profit entities, among others.

According to the General Accounting Plan, the company's result is the difference between sales and income and purchases and expenses accrued in the year. To determine the BI, we start from the accounting result in the direct estimation method the applied generally).

Accounting expenses are, in general, tax deductible, however, the tax regulations indicate some non-deductible expenses that in general and with qualifications are:

1. Those that represent a return on equity.

2. Those derived from accounting Corporation Tax.

3. Fines and penal and administrative sanctions, surcharges of the executive period and the surcharge for untimely declaration without prior requirement.

4. Gambling losses.

5. Donations and gifts.

6. Expenses of activities contrary to the legal system.

7. Expenses of services corresponding to operations carried out, directly or indirectly, with persons or entities resident in countries or territories classified as tax havens, or which are paid via persons or entities resident in them, except if the taxpayer proves that the accrued expense corresponds to an operation or transaction actually carried out.

8. Financial expenses accrued in the tax period, derived from debts with group entities according to the criteria established in article 42 of the Commercial Code, intended for the acquisition, from other group entities, of shares in the capital or equity of any type of entities, or for the realization of contributions in the capital or equity of other group entities, unless the taxpayer proves that there are valid economic reasons for carrying out said operations.

9. Expenses deriving from the extinction of the employment relationship, common or special, or from the mercantile relationship referred to in Article 17.2.e) of Act 35/2006, or from both, even when they are paid in several tax periods, which exceed, for each recipient, the greater of the following amounts:

   1. 1 million euros.

   2. The obligatory amount established in the Workers' Statute, in its implementing regulations or, where relevant, in the regulation that governs the execution of rulings, without it being able to be considered as such if established by virtue of an agreement, covenant or contract. For these purposes, the amounts paid by other entities that form part of the same group of companies in which the circumstances provided for in article 42 of the Commercial Code occur will be computed.

10. Losses due to impairment of securities representing participation in the capital or equity of entities in respect of which any of the following circumstances apply:

    1. that, in the tax period in which the impairment is recorded, the requirements established in article 21 of the LIS are met, or

    2. that, in the case of participation in the capital or equity of entities not resident in Spanish territory, the requirement established in letter b) of section 1 of article 21 of the LIS is not met in said tax period.

11. Decreases in value arising from the application of the fair value criterion corresponding to securities representing participations in the capital or equity of entities referred to in the previous letter, which are recorded in the profit and loss account, unless, previously, an increase in value corresponding to homogeneous securities of the same amount has been integrated into the tax base, where appropriate.

12. The tax debt of the Tax on Property Transfers and Documented Legal Acts, Documented Legal Acts category, notarial documents, when it concerns loan deeds with mortgage guarantee in which the taxpayer is the lender.

13. Expenses that are subject to the deduction regulated in article 38 bis of the LIS will not be deductible, including those corresponding to the amortization of assets whose investment has generated the right to the aforementioned deduction.

The adjustments are a consequence of the discrepancies between accounting and tax standards. The adjustments allow the accounting result to be reconciled with what is established in the rules that regulate the obtaining of the BI , and may be motivated by differences in the qualification, in the valuation or in the temporary imputation.

Before offsetting negative tax bases, the following reductions may be made, among others:

• Reduction of income from certain intangible assets (Patent box):

  This reduction in the tax base is intended to stimulate the performance of activities for the creation of technical knowledge with industrial or commercial application within the framework of an innovative activity, so that the exploitation of such knowledge through the transfer of its use to third parties or its transmission has a special treatment consisting of integrating into the tax base of the transferor or transmitting entity only a part of the income obtained in the transfer or its transmission.

  With effect for tax periods beginning on or after 1 January 2018, positive income from the transfer of the right to use or exploit patents, utility models, supplementary protection certificates for medicines and phytosanitary products, legally protected designs and models arising from research and development and technological innovation activities, and registered advanced software arising from research and development activities, shall be entitled to a reduction in the tax base by the percentage resulting from multiplying the result of the following coefficient by 60%:

  1. In the numerator, expenses incurred by the entity directly related to the creation of the asset, including those derived from sub-contracting with unassociated third parties. These expenses will be increased by 30 percent, without, in any case, the numerator being able to exceed the amount of the denominator.

  2. In the denominator, expenses incurred by the entity directly related to the creation of the asset, including those derived from sub-contracting and, if applicable, the acquisition of the asset.

  In no case shall the aforementioned coefficient include financial expenses, repayments on properties or other expenses not directly related to the creation of the asset.

  The above will also apply in the case of transfer of the intangible assets referred to therein, when said transfer is made between entities that do not have the status of related parties.

  To apply this reduction, certain requirements regulated in the LIS must be met.

  As of July 1, 2016, minor changes were made to the amount of the reduction, the requirements, intangibles whose income gives the right to a reduction, as well as the possibility that the affected income is positive or negative.

  Finally, a transitional regime is regulated for the reduction of income from certain intangible assets of the taxpayer available before July 1, 2016.

• Capitalization reserve:

  For tax periods beginning in January 2015, the capitalization reserve was introduced into the Corporate Tax regulations with the aim of encouraging companies to capitalize their profits by fiscally rewarding their non-distribution. Thus, this measure allows companies that pay tax at the general rate or at the increased rate of 30% (credit institutions, as well as entities dedicated to the exploration, research and exploitation of hydrocarbon deposits and underground storage facilities) to reduce the taxable base prior to the tax period by the amount of 10% of the profits obtained in the immediately preceding tax period that are not subject to distribution in the tax period in which the taxable base is reduced (increase in equity), provided that the amount of such undistributed profits in the entity's equity for a period of five years from the close of the financial year in which this reduction was made.

  In order to apply this reduction in base, it is necessary to provide an unavailable reserve the period of five years, for the amount of the reduction.

  It is only possible to know the increase of own equity that has taken place in a tax period at the end of said period, whereby there has been an increase in the entity's reserves. The formal requirement to record a reserve in the balance sheet that is qualified as unavailable, with absolute separation and a specific description, will be understood as met, provided that the formal provision of said capitalisation reserve takes place during the period that has been legally established by trade regulations for the approval of the annual accounts, for the fiscal year corresponding with the tax period during which the reduction is applied.

For tax periods starting on or after January 1, 2015, the negative BI , which has been the subject of liquidation or self-assessment, of a tax period may be offset against positive income generated in the tax periods following the one in which the negative BI originated without any time limit (in tax periods starting before then the period was 18 years).

The unlimited period applies to the negative BI pending compensation at the beginning of the first tax period starting on or after January 1, 2015, regardless of the tax period in which such negative BI were generated.

With effect for tax periods beginning on or after 1 January 2016, the amount of the compensation is limited to the following percentages based on the net amount of turnover during the 12 months preceding the date on which the tax period begins:

• Less than €20,000,000: 70% (60% in 2016)

• €20,000,000 to €60,000,000: 50%

• More than €60,000,000: 25%

The maximum limit for offsetting negative tax bases is €1,000,000.

The aforementioned percentages are calculated with respect to the BI prior to the application of the capitalization reserve and the compensation of the negative BI . However, the limitation does not apply in the following cases: minimum amount of €1,000,000, write-offs and waiting periods (the maximum limit of €1,000,000 does not apply), extinction of the entity, newly created entities and reversal of impairments.