Hybrid asymmetries

Royal Decree-Law 4/2021 , of March 9, which modifies Law 27/2014, of November 27, on Corporate Tax, and the consolidated text of The Non-Resident Income Tax Law, approved by Royal Legislative Decree 5/2004, of March 5, in relation to hybrid asymmetries, introduces with effect for tax periods that begin on or after January 1, 2020 and that have not ended upon the entry into force of this Royal Decree-Law (March 11, 2021), a new article 15 bis in the LIS , with the consequent repeal of article 15 j) of the LIS, and adds sections 6 and 7 to article 18 of the consolidated text of the Non-Resident Income Tax Law, in order to transpose Council Directive ( EU ) 2016/1164, of July 12, 2016, in the wording given by Council Directive (EU) 2017/952, of May 29, 2017, regarding the hybrid asymmetries that take place between Spain and other Member States and between Spain and third countries or territories.

This adjustment can only be made when the taxpayer has a tax period that has not ended on March 11, 2021 , that is, the tax period must end after the entry into force of the Real Decree-law 4/2021, of March 9.

This adjustment of “Hybrid asymmetries” derived from the application of the new article 15 bis of the LIS is incompatible with the adjustment «Expenses corresponding to operations carried out with related persons or entities» relative to the application of article 15 j) of the LIS.

The new article 15 bis indicates in its section 1 that the expenses corresponding to operations carried out with related persons or entities residing in another country or territory that, as a consequence of a different tax classification of the expense or operation, do not generate income, generate exempt income or are subject to a reduction in the tax rate or any tax deduction or refund other than a deduction to avoid legal double taxation.

In the event that the income is generated in a tax period that begins within twelve months following the conclusion of the tax period in which the expense was accrued to the taxpayer, said expense will be tax deductible in the tax period in which the aforementioned income is integrated into the beneficiary's tax base.

On the other hand, in section 2 of the aforementioned article 15 bis of the LIS , it is established that will not be tax deductible the expenses corresponding to operations carried out with related persons or entities residing in another country or territory that, as a consequence of a different tax classification of the taxpayer in said country or territory, do not generate income, in the part that is not offset with income that generates double inclusion income.

The amount of the expenses not deducted by application of the provisions of the previous paragraph may be deducted in the tax periods that conclude within three years following the conclusion of the period tax in which such expenses were accrued, to the extent that is offset by the taxpayer's income that generates double inclusion income.

amount corresponding to operations carried out with related persons or entities residing in another country or territory that, as a consequence of a different tax classification of these, will be included in the tax base ##1## , has been considered a tax-deductible expense in that other country or territory , in the part that is not offset by income that generates double income inclusion.

The amount integrated into the tax base by application of the provisions of the previous paragraph may be reduced from the tax base of the tax periods that conclude within the three years following the conclusion of the tax period in which the income was integrated, to the extent that such expense is offset in the other country or territory with income of the related person or entity that generates double inclusion income.

Likewise, article 15 bis of the LIS in its section 3 states that will not be tax deductible expenses corresponding to operations carried out with related persons or entities residing in another country or territory that, as a consequence of a different tax classification from these in said country or territory and in that of their participant or investor, do not generate income.

The provisions of the preceding paragraph shall also apply where a connection relationship exists exclusively between the taxpayer and the aforementioned participant or investor.

section 4 of article 15 bis of the LIS establishes that ## the expenses corresponding to operations carried out with or by related persons or entities residing in another country or territory that, as a consequence of their different tax classification, are also tax-deductible expenses in said persons or related entities, in the part that is not offset by income that generate double inclusion income.

The amounts not deducted in accordance with the provisions of the previous paragraph may be deducted in the tax periods that end in the three years following the conclusion of the tax period in which such expenses were accrued , to the extent that are offset by income of the related person or entity that generates double inclusion income.

Expenses corresponding to operations carried out by the taxpayer will not be tax deductible when they are also considered tax deductible in the country or territory of a related person or entity as a result of a different qualification tax of the taxpayer, in the part that is not offset by income that generates double inclusion income.

The amounts not deducted in accordance with the provisions of the previous paragraph may be deducted in the tax periods that end in the three years following the conclusion of the tax period in which such expenses were accrued, to the extent that they are offset by the taxpayer's income that generates double inclusion income.

Specifically, section 5 of article 15 bis of the LIS , indicates the following expenses that will not be tax deductible:

1. Expenses corresponding to transactions carried out with a permanent establishment of the taxpayer or of a related entity, or with a related entity that has permanent establishments, where as a result of a tax difference in their attribution between the permanent establishment and its head office, or between two or more permanent establishments, they do not generate income.

2. Expenditure corresponding to transactions carried out with a permanent establishment of the taxpayer or of a related person or entity which, because the establishment is not recognised for tax purposes by the country or territory, does not generate income.

3. Estimated expenditure of internal transactions carried out with a permanent establishment of the taxpayer, where such expenditure is recognised in an applicable international double taxation agreement, and where, under the law of the country or territory of the permanent establishment, it does not generate income, in the part that it is not offset by income of the permanent establishment which generates double-inclusion income.

   The amount of expenses not deducted by application of the preceding paragraph may be deducted in the tax periods ending within the following three years, to the extent that they are included in the taxable income of the taxpayer with income of the permanent establishment which generates double-inclusion income.

4. Expenses corresponding to transactions carried out with or by a permanent establishment of the taxpayer which are also tax deductible in that permanent establishment or in an entity related to it, in the part that is not offset by income from said permanent establishment or related entity which generates double-inclusion income.

   The amounts not deducted in accordance with the provisions of the preceding paragraph may be deducted in the tax periods ending in the three years following the end of the tax period in which such expenses were accrued, to the extent that they are offset against income of the related permanent establishment or entity generating double-inclusion income.

section 6 of article 15 bis of the LIS establishes that the provisions of article 22 of the LIS will not apply in the case of income obtained through a permanent establishment that is not recognized for tax purposes by the country or territory of situation.

In accordance with section 7 of article 15 bis of the LIS , the expenses will not be tax deductible corresponding to a transaction or series of transactions carried out with related persons or entities residing in another country or territory, when they finance, directly or indirectly, deductible expenses carried out within the framework of operations that generate the effects derived from the hybrid asymmetries referred to in the previous sections of this article, except when one of the affected countries or territories has made an adjustment to avoid the deduction of the expense or subject the income to taxation, in the terms set forth in said sections.

In section 8 of article 15 bis of the LIS , it is established that will be deductible in the fee of this Tax the amount of the withholding made on its account in the proportion that corresponds to the income integrated into the tax base obtained in a hybrid transfer made with a related person or entity not resident in Spanish territory.

For these purposes, a hybrid transfer is considered to be any operation relating to the transfer of a financial instrument when the underlying performance of the transferred financial instrument is considered, for tax purposes, to have been obtained simultaneously by more than one of the parties involved in the operation.

section 9 of article 15 bis of the LIS specifies that the provisions of the previous sections of this article 15 bis will also apply when the The operations to which they refer, regardless of whether they are carried out between related persons or entities or not, take place within the framework of a structured mechanism.

For these purposes, a structured mechanism is considered to be any agreement, legal transaction, scheme or operation in which the tax advantage derived from the hybrid asymmetries referred to in said sections in the terms indicated therein , is quantified or considered in its conditions or considerations or that has been designed to produce the results of such asymmetries, except that the taxpayer or a person or entity linked to him could not have reasonably known them and did not share the indicated tax advantage.

section 10 of article 15 bis of the LIS establishes that expenses or losses will not be tax deductible that are tax deductible in another country or territory in which the taxpayer is also a tax resident, in the part that is offset by income that does not generate double inclusion income.

Where such expense is offset in the other country or territory in a tax period subsequent to the deduction of the expense or loss on the taxpayer, the taxpayer must include the amount corresponding to the aforementioned amount in the tax period in which this occurs.

The provisions of the previous paragraph shall not apply when the other country is a Member State of the European Union with which Spain has signed an agreement to avoid international double taxation by virtue of which the taxpayer is considered a tax resident in Spanish territory.

section 11 of article 15 bis of the LIS introduces the following explanation, indicating that for the purposes of the provisions of this article 15 bis, it is considered that income generates double inclusion income when it is subject to taxation in accordance with this law and the legislation of the other country or territory.

Likewise, section 12 of article 15 bis of the LIS explains that, for the purposes of the application of the provisions of this article 15 bis, the reference to related persons or entities will include:

1. Related persons or entities in accordance with the provisions of article 18 of the LIS.

2. An entity which holds, directly or indirectly, an interest of at least 25 per cent in the voting rights of the taxpayer or is entitled to receive at least 25 per cent of the profits of the taxpayer, or in which the taxpayer holds such an interest or rights.

3. The person or entity in respect of which the taxpayer acts jointly with another person or entity regarding the voting rights or ownership of the capital of the latter, or the person or entity acting jointly with another person or entity regarding voting rights or ownership of the capital of the taxpayer.

   For these purposes, the taxpayer or, in the second case, the person or entity, will be treated as the holder of a participation in relation to all the voting rights or ownership of the capital of the entity or the taxpayer, respectively, that are property of the other person or entity.

4. An entity over whose management the taxpayer has a significant influence or an entity that has a significant influence over the management of the taxpayer. For these purposes, it is considered that there is significant influence when an entity has the power to intervene in the financial and operating policy decisions of another entity, but does not control or exercise joint control over that entity.

Finally, article 15 bis in its section 13 states that, the provisions of the previous sections will not apply when the hybrid asymmetry is due to the beneficiary being exempt from the Tax, occurs within the framework of an operation or transaction that is based on a financial instrument or contract subject to a special tax regime, nor when the difference in The imputed value is due to valuation differences, including those derived from the application of the regulations on related-party transactions.

Filling in form 200

In application of the provisions of article 15 bis of the LIS, the taxpayer must make the following adjustments in boxes [02469] and [02470] "Hybrid asymmetries (art. 15 bis LIS)" from page 12 of model 200:

• In the tax period in which the non-tax deductible expenses or losses are recorded , in accordance with the provisions of article 15 bis of the LIS, a positive adjustment must be made to the accounting result in the box [02469] .

• In the tax period in which the circumstances indicated in article 15 bis of the LIS occur, and taking into account the time limits established therein, a negative adjustment must be made in the box [02470].