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Practical Handbook for Companies 2021

Scope

Regulation: Article 101 LIS

A company is considered to be small and, therefore, may apply the tax incentives provided for these companies in Chapter XI of Title VII of the LIS, when the net turnover in the immediately preceding tax period is less than 10 million euros.

A tener en cuenta:

Said tax incentives will not apply when the entity is considered as asset-holding entity in the terms established in article 5.2 of the LIS (you can consult the concept of asset-holding entity in the explanation of the box [00066] "Asset-holding entity" in Chapter 2 of this Manual).

The tax incentives provided for small companies may also be applied in the three tax periods immediately following the one in which the aforementioned turnover of EUR 10 million is reached, in the following cases:

  • When the entity or group of entities has fulfilled the conditions to be considered as small both in that period and in the two tax periods prior to it.

  • When this turnover has been achieved as a result of having carried out a transaction covered by the special tax regime for mergers, spin-offs, contributions of assets and exchanges of securities established in Chapter VII of Title VII of the LIS, provided that the entities that have carried out such transaction meet the conditions to be considered as small, both in the tax period in which the transaction is carried out and in the two tax periods prior to the latter.

Example:

Entity A has a turnover in the tax periods 2014, 2015, 2016, 2017 and 2018 of 5, 5, 9, 9, 9 and 11 million euros respectively. In which tax years can it apply the special regime for small companies?

  • At 2015 you can apply the special regime because in 2014 the net turnover was less than 10 million euros.

  • At 2016 you can apply the special regime because in 2015 the net turnover was less than 10 million euros.

  • At 2017 you can apply the special regime because in 2016 the net turnover was less than 10 million euros.

  • At 2018 you can apply the special regime because in 2017 the net turnover was less than 10 million euros.

  • At 2019, 2020 and 2021: can also apply the special scheme in these periods.Although in the 2018 period the entity has a net turnover of more than 10 million euros, in that 2018 period and in the two previous periods (2016 and 2017) it fulfilled the condition to be considered a small company, so that in 2019, 2020 and 2021 it may apply the special regime, regardless of the turnover of the previous period.

Considerations on Net Turnover

  • The Corporate Income Tax Act does not define what is meant by turnover.

    However, given that the rules of common law are supplementary in the tax sphere (Article 7.2 of Law 58/2003, of 17 December, General Tax Law), we find the concept of turnover in Article 35.2 of the Commercial Code, which establishes that this figure will include the amounts from the sale of products and the provision of services or other income corresponding to the ordinary activities of the company, deducting bonuses and other reductions on sales, as well as Value Added Tax and other taxes directly related to the aforementioned turnover, which must be passed on.This same definition is included in the 11th Annual Accounts Preparation Standard of the General Accounting Plan (NECA 11th of the PGC), referring to the determination of the annual turnover, whose components for its determination are established by the Resolution of the ICAC of 16 May 1991.

  • In the case of newly created entities, the amount of turnover shall refer to the first tax period in which the activity is actually carried out.

  • If the immediately preceding tax period has lasted less than one year or the activity has been carried out for a shorter period, the net turnover shall be increased by one year.

    (Net turnover in the immediately preceding tax period / no. of days in the immediately preceding tax period) x 365 days

  • When the entity forms part of a group of companies within the meaning of article 42 of the Commercial Code, regardless of residence and of the obligation to prepare consolidated annual accounts, the net turnover shall refer to all the entities belonging to said group, taking into account the eliminations and additions that correspond to the application of the accounting regulations.Consequently, when the entity forms part of a group of companies within the meaning of Article 42 of the Commercial Code, if the net turnover of all the entities belonging to the group was not less than 10 million euros in the previous year, none of the companies making up the group may apply the tax incentives established in the LIS for small companies.

    This same criterion shall also apply in cases where a natural person alone or jointly with the spouse or other natural persons linked by direct or collateral kinship, by blood or by affinity, up to and including the second degree, are in any of the situations referred to in Article 42 of the Commercial Code in relation to other entities of which they are shareholders, irrespective of the residence of the entities and of the obligation to prepare consolidated annual accounts.

    For the purposes of Article 42 of the Commercial Code, a group exists when a company has or may have, directly or indirectly, control over one or more other companies.Specifically, control is understood to exist when a company, deemed the parent, holds relations with another company, deemed the subsidiary, in any of the following situations:

    1. It holds the majority of the voting rights.

    2. It has the power to appoint or dismiss the majority of the members of the governing body.

    3. It can avail of the majority of the voting rights by virtue of agreements held with third parties.

    4. It has assigned its voting rights to the majority of the members of the governing body, who are in office at the time of the preparation of the consolidated accounts and during the two years immediately prior thereto.Specifically, this circumstance shall be understood to apply when the majority of the members of the governing body of the subsidiary are members of the governing body or senior management of the parent or other company held by the parent.This will not give rise to consolidation if the company whose directors have been appointed is associated to another in any of the cases set forth in the first two parts of this section.

    For the purposes of this section, voting rights attributable through other subsidiaries or through parties acting in their own name but on behalf of the parent or other subsidiaries, or those agreed with any other party, shall be added to the voting rights of the parent company.