International legal double taxation: Tax paid by taxpayer

article 31 of the LIS regulates this deduction for international double taxation that is applied to positive income obtained and taxed abroad by entities resident in Spanish territory.

In the event that said income is taxed in the country where it was obtained and subsequently, when integrated into the taxpayer's tax base, is taxed by Corporate Tax in Spanish territory, double taxation occurs, which we try to avoid with the application of this deduction.

For these purposes, article 31 of the LIS establishes that when the taxpayer's tax base includes positive income (as of January 1, 2017, only positive) obtained and taxed in the foreigner, the lesser of the following two amounts will be deducted from the full fee:

The effective amount of what was paid abroad due to the tax of an identical or analogous nature to this Tax.

Tax not paid because of exemptions, allowances or any other tax benefit will not be deducted.

If an agreement to avoid double taxation is in force, the deduction may not exceed the amount specified therein.
The total amount of tax that would be payable in Spain if the income had been obtained in this country.

Keep in mind:

When determining this amount, the reduction of income from certain intangible assets regulated in article 23 of the LIS must be taken into account, where applicable.

Consequently, the entire tax paid abroad will be included in the tax base, even if part of it is not deductible in the full tax.

A deductible expense will be considered to be that part of the amount of the tax paid abroad that is not subject to deduction in the full quota by application of what is indicated in the previous section, whenever applicable. with the carrying out of economic activities abroad.

In the event that the taxpayer has obtained several incomes from abroad in the tax period , the deduction will be made by grouping those from the same country except for income from permanent establishments, which will be computed separately for each of these.

The determination of income obtained abroad through a permanent establishment will be carried out in accordance with the provisions of article 22.5 of the LIS.

Next, for a better understanding of the application of the deduction for international legal double taxation, see the following practical case.

Example:

The reporting entity, resident in Spain, which pays tax at the general tax rate, has carried out operations in a foreign country "X" during 2020, without the mediation of a permanent establishment, for which it has obtained positive income in an amount equivalent to 12,000 euros. The tax equivalent to Corporate Tax, paid abroad on said income, amounted to the equivalent of 5,000 euros.

The taxpayer calculates the deduction for international double taxation as follows:

Positive income: 12,000

Further:

Tax paid abroad: 5,000

Calculation basis: 17,000

Equivalent fee (25% s/ 17,000): 4,250

Applicable deduction: 4,250 (the lesser between 4,250 and 5,000)

Reflecting the above data in the scheme for determining the deduction for international double taxation:

Country/Establishment permanent	Positive income (R)	Tax foreign (E)	B = R + E Calculation base	C = B x type Equivalent quota	Applicable deduction (the lesser of E and C)
Country "X"	12,000	5,000	17,000	4,250	4,250

Note: According to the provisions of article 31.2 of the LIS, the part of the amount of the tax paid abroad that is not subject to deduction in the full quota by application of the provisions of section 1 of said article will be considered a deductible expense. as long as it corresponds to the carrying out of economic activities abroad. Therefore, in this example:

Deductible expense: 5,000 - 4,250 = 750