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Practical Manual for Companies 2021.

Deduction for investments in West African territories and for advertising and publicity expenses

Regulation: Article 27 bis Law 19/1994

1. Scope

  • Entities subject to Corporate Tax with a tax domicile in the Canary Islands that meet certain requirements with respect to the net amount of turnover in the immediately preceding tax period and with respect to the average workforce in said period are entitled to apply these deductions.

    In the case of entities that form part of a group of companies within the meaning of article 42 of the Commercial Code , regardless of residence and the obligation to prepare consolidated annual accounts, the net amount of turnover and average workforce will refer to all entities belonging to the same group.

  • When the entity is newly created, the net amount of the turnover will refer to the first tax period in which the activity is actually carried out. If the immediately preceding tax period had a duration of less than one year, or the activity had been carried out for a period of time that was also shorter, the net amount of the turnover will be increased to one year.

  • The deduction for investments in West African territories will be applied in the tax period in which the participating entity or permanent establishment starts the economic activity, and will be conditional on a increase in the average workforce in the Canary Islands of the taxpayer in that tax period with respect to the average workforce existing in the previous tax period and on maintaining said increase for a period of 3 years.

2. Requirements and amount of the deduction

This deduction will not apply the increased rates of article 94.1. a) of Law 20/1991 . The reason is that, although this deduction is similar to the deduction for export activities included in Article 26 of Law 61/1978, it should be remembered that this deduction was repealed as a result of Decision C (2006) 444 final, of March 22, 2006, in which it was declared as State aid not compatible with the common market. Consequently, it would not be possible to speak properly of a deduction equivalent to that existing in Law 61/1978, since it was declared contrary to Community Law.

Entities subject to Corporate Tax with tax domicile in the Canary Islands, may apply the following deductions:

  1. When the net amount of the turnover in the immediately preceding tax period is equal to or less than 10 million euros and with an average workforce in said period less than 50 people:

    1. Entities may deduct 15 percent of the investments actually made in the establishment of subsidiaries or permanent establishments in the Kingdom of Morocco, the Islamic Republic of Mauritania, the Republic of Senegal, the Republic of Gambia, the Republic of Guinea Bissau and the Republic of Cape Verde, provided that these entities carry out economic activities in said territories within 1 year from the time of the investment. The application of the deduction will require:

      • That the entity alone or jointly with other entities with tax domicile in the Canary Islands holds a percentage of participation in the capital or in the equity of the subsidiary of at least 50 percent , and

      • That the investment in said participating entity or permanent establishment is maintained for a period of at least 3 years.

    2. Entities may deduct 15 percent of the amount paid for multi-year advertising and publicity expenses for product launches, opening and prospecting markets abroad and attendance at fairs, exhibitions and similar events, including in this case those held in Spain with an international character.

  2. When the net amount of turnover in the immediately preceding tax period does not exceed 50 million euros and with an average workforce in said period less than 250 people, the deductions indicated in point 1 above will be applied at a rate of 10 percent.

According to the provisions of letter c) of article 38.1 of Royal Decree 1758/2007, of December 28, which approves the Regulation for the development of Law 19/1994, of July 6, in accordance with the established limits in letters c) and e) of Article 4 of Commission Regulation ( EU ) No. 651/2014, the amount of the deduction for investments in West African territories may not exceed the amount of 7.5 million euros per company and per project . The amount of the deduction for advertising and publicity expenses may not exceed the amount of 2 million euros per company and year .

3. Applicable limits

  • Article 27.bis.3 of Law 19/1994 establishes in its second paragraph that the limits of article 39.1 of the LIS will be applied to this deduction 1##.

  • In no case may the increased limits of article 94.1. b) of Law 20/1991 be applied to this deduction is that, as already indicated in section 1.2.2, although this deduction is similar to the deduction for export activities included in article 26 of Law 61/1978, it should be remembered that this deduction was repealed as a result of Decision C (2006) 444 final, of 22 March 2006, in which it was declared as State aid incompatible with the common market.