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Practical Income Manual 2021.

b) Requirements for the application of the deduction

Regulations: Art. 27, sections 3 to 14 and eighth transitional provision of Law 19/1994, of July 6, modifying the Economic and Fiscal Regime of the Canary Islands

To apply this deduction, the following requirements must be met:

  • That the taxpayer determines the net returns from its economic activity in accordance with the direct estimation method and that said returns come from activities carried out through establishments located in the Canary Islands.

  • That the Investment Reserve is accounted for separately , and that it is not available as long as the assets in which it has materialized must remain in the company.

  • That the amounts allocated to said reserve materialize within a maximum period of three years , counted from the date of accrual of the tax corresponding to the year in which it was allocated.

    However, the period is four years (instead of three years) to materialize the amounts destined for the reserve for investments in the Canary Islands endowed with profits obtained in 2016 .

    Royal Decree-Law 39/2020, of December 29, on financial measures for social and economic support and compliance with the execution of sentences, introduced a new eighth transitional provision in Law 19/1994, of July 6, of modification of the Economic and Fiscal Regime of the Canary Islands, to extend by one year (from three to four years) the maximum period to materialize the reserve endowed with benefits obtained in tax periods beginning in 2016, so that said materialization may take place in 2021 in the event that the allocation to the reserve for investments in the Canary Islands for profits obtained in 2016 had been made in 2017.

  • That said materialization is carried out in the realization of any of the investments detailed in article 27.4 of Law 19/1994 ( BOE of 30).

    The investments detailed in article 27.4 of Law 19/1994 are examined in its specific section " Investments where the amounts destined for the RIC " of this Chapter must be materialized

  • That the assets in which the investment is materialized are located or received in the Canary Islands, that they are used therein, that they are affected and are necessary for the development of economic activities of the taxpayer, except in the case of those who contribute to the improvement and protection of the Canarian environment. Investments detailed in article 27.4 of Law 19/1994.

    Article 27.5 of Law 19/1994 determines for this purpose what elements will be understood to be located and used in the archipelago.

  • That the assets in which the reserve for investments related to letters A and C of article 27.4 of Law 29/1994 has materialized, as well as those acquired by virtue of the provisions of letter D of the aforementioned section 4 of article 27, remain in operation in the company of the same taxpayer for at least five years , without being subject to transfer, lease or assignment to third parties for their use. When its permanence is less than said period, this requirement will not be considered non-compliance when another asset element is acquired to replace it at its net book value, prior to or within a period of 6 months from its removal from the balance sheet. meets the requirements for the application of the deduction and remains in operation for the time necessary to complete said period. In the case of land acquisition, the term will be ten years.

    Taxpayers who engage in the economic activity of leasing or transferring fixed assets to third parties for their use may enjoy the reserve for investments, provided that there is no direct or indirect connection with the lessees or assignees of said assets, in the terms defined in article 18.2 of Law 27/2014, of November 27, on Corporate Tax, nor are they financial leasing operations.

    In the case of leasing of real estate, in addition to the conditions provided for in the previous paragraph, the requirements established in the fourth paragraph of section 8 of article 27 of the aforementioned Law 19/1994, of July 6, must be met.

    For the purposes of calculating the maintenance period, it must be taken into account that, for the investments of article 27.4. A) and C), materialization will be deemed to have occurred, even in cases of acquisition through financial leasing, at the time the assets come into operation.

Note: the sole article. One of Royal Decree-Law 15/2014, of December 19, modifying the Economic and Fiscal Regime of the Canary Islands ( BOE of 20) repealed the section 10 of article 27 of Law 19/1994, so it is no longer necessary for the taxpayer to present the investment plan electronically within the tax declaration deadlines in which the deduction is made corresponding to the reserve for investments in the Canary Islands and through the form that appeared on the page of the State Tax Administration Agency on the Internet.

Non-compliance with requirements

Regulations: Art. 27.16 Law 19/1994, of July 6, modifying the Economic and Fiscal Regime of the Canary Islands

The provision of the reserve for investments prior to the end of the investment maintenance period or for investments other than those provided for in section 4 of this article, as well as non-compliance with any other of the requirements established in this article, except The requirement of its separate accounting and of the information that the RIC must contain in the annual accounts report, will result in the taxpayer proceeding to the integration, into the personal income tax tax base of the year in which these circumstances occur, of the amounts that in their day gave rise to the reduction of the former or the deduction of the latter, without prejudice to the sanctions that may be appropriate.

In the case of non-compliance with the obligation to exercise the purchase option provided for in the financial leasing contracts, the integration into the tax base will take place in the year in which it was contractually foreseen that it should have been exercised.

Default interest will be settled in the terms provided in Law 58/2003 and its implementing regulations.