General aspects of increased limits. Examples

The increased limits of article 94.1. b) of Law 20/1991 will be applied on the full quota reduced by deductions to avoid international double taxation and bonuses ( box [00582] "Positive adjusted full quota" on page 14 of form 200).

In relation to these increased limits, the provisions of article 39 of the LIS must be taken into account, which establishes that the amount of the deductions applied in the tax period, may not jointly exceed 25 percent of the total quota reduced by the deductions to avoid international double taxation and the bonuses. However, the limit will be raised to 50 percent when the amount of the deduction provided for in article 35 of the LIS, which corresponds to expenses and investments made in the tax period itself, exceeds 10 percent of the total amount, reduced by deductions to avoid international double taxation and bonuses.

Therefore:

If we apply to the general limit of 25 percent the provisions of article 94.1.b) of Law 20/1991, according to which the limits will always be 80 percent higher than that set for each modification of the deduction for investments in the general regime with a minimum differential of 35 percentage points, the limit of 25 percent will increase to 60 percent, since according to the following calculations it is the greater of:
- 25% x 1.8 = 45%
- 25% + 35% = 60%
With effect for tax periods beginning on or after 7 November 2018, for the islands of La Palma, La Gomera and El Hierro , if we apply to the general limit of 25 percent the provisions of article 94.1.b) Law 20/1991 which establishes that the minimum limit of 80 percent will be increased to 100 percent and the minimum differential will increase to 45 percentage points, provided that the Community regulations on state aid so permit and the investments are contemplated in Law 2/2016, of 27 September and other laws on measures for the regulation of the economic activity of these islands, the 25 percent limit will be increased to 70 percent, since according to the following calculations it is the greater of:
- 25% x 2 = 50%
- 25% + 45% = 70%
If we apply the provisions of article 94.1.b) of Law 20/1991 to the 50 percent limit, this limit will increase to 90 percent, since according to the following calculations it is the greater of:
- 50% x 1.8 = 90%
- 50% + 35% = 85%
With effect for tax periods beginning on or after 7 November 2018, for the islands of La Palma, La Gomera and El Hierro, if we apply to the general limit of 50 percent the provisions of article 94.1.b) of Law 20/1991 which establishes that the minimum limit of 80 percent will be increased to 100 percent and the minimum differential will increase to 45 percentage points, when the Community regulations on state aid so permit and the investments contemplated in Law 2/2016, of 27 September and other laws on measures for the regulation of the economic activity of these islands, the 50 percent limit will be increased to 100 percent, since according to the following calculations it is the greater of:
- 50% x 2 = 100%
- 50% + 45% = 95%
In relation to the improvement of the limits provided for in article 94.1.b) of Law 20/1991 for the islands of La Palma, La Gomera and El Hierro, after the modification made for the tax periods starting from November 7, 2018 by Law 8/2018, of November 5, in order to apply the increased percentages of the maximum limit on the positive adjusted integral quota in said minor islands, it is required that the taxpayer has his tax domicile or a permanent establishment in such islands, and that the investment is located and used in them.

As regards the application of the limits, in those cases in which the taxpayer generates deductions in the aforementioned minor islands and in the rest of the Canary Islands archipelago, he/she must simultaneously to the following criteria:
1. The deductions generated on the three islands indicated must respect their own improved limit. Likewise, the deductions generated in the rest of the Canary Islands must also respect their own improved limit.
2. In the event that there are deductions both on the three islands mentioned and on the rest of the Canary Islands, the maximum limit for both types of deductions will be the higher one, that is, the improved limit for the three islands.
3. In the event that deductions apply on the three islands mentioned and on the rest of the Canary Islands, the latter will not be able to benefit from the increased limit for the three islands.

Practical examples

Below is a series of examples that show in a more graphic way how the increased limits are applied in cases where the taxpayer generates deductions for investments in the islands of La Palma, La Gomera and El Hierro, as well as in the rest of the Canary Islands.

Example 1

Company "A" with tax domicile in the Canary Islands, has made investments in different islands of the Canary Islands in the year 2021, for which it has generated the following deductions:

Deductions generated in 2021:

Deduction for investments in Tenerife: 5,000 euros
Deduction for investments in La Palma: 9,000 euros

Note: We assume that no R&D&I expenses have been incurred in generating these deductions.

This company has an adjusted total share (box [00582] on page 14 of form 200) of 10,000 euros

Increased limit in Tenerife (60%): 10,000 x 0.6 = 6,000 euros
Improved increased limit in La Palma (70%): 10,000 x 0.7 = 7,000 euros
Maximum limit to be applied to the CI: Improved Increased Limit: 10,000 x 0.7 = 7,000 euros

Deductions to be applied in 2021:

Deduction for investments in La Palma: 7,000 euros
Deduction for investments in Tenerife: 0 euros

Deductions to be applied in future years:

Deduction for investments in Tenerife: 5,000 euros
Deduction for investments in La Palma: 2,000 euros

Example 2

Company "B" with tax domicile in the Canary Islands, has made investments in different islands of the Canary Islands in the year 2021, for which it has generated the following deductions:

Deductions generated in 2021:

Deduction for investments in Tenerife: 5,000 euros
Deduction for investments in La Palma: 6,000 euros

Note: We assume that no R&D&I expenses have been incurred in generating these deductions.

This company has an adjusted total share (box [00582] on page 14 of form 200) of 10,000 euros

Increased limit in Tenerife (60%): 10,000 x 0.6 = 6,000 euros
Improved increased limit in La Palma (70%): 10,000 x 0.7 = 7,000 euros
Maximum limit to be applied to the CI: Improved Increased Limit: 10,000 x 0.7 = 7,000 euros

Deductions to be applied in 2021:

Deduction for investments in La Palma: 6,000 euros
Deduction for investments in Tenerife: 1,000 euros

Deductions to be applied in future years:

Deduction for investments in La Palma: 0 euros
Deduction for investments in Tenerife: 4,000 euros

Example 3

Company "C" with tax domicile in the Canary Islands, has made investments in different islands of the Canary Islands in the year 2021, for which it has generated the following deductions:

Deductions generated in 2021:

Deduction for investments in Tenerife: 9,000 euros
Deduction for investments in La Palma: 500 euros

Note: We assume that no R&D&I expenses have been incurred in generating these deductions.

This company has an adjusted total share (box [00582] on page 14 of form 200) of 10,000 euros

Increased limit in Tenerife (60%): 10,000 x 0.6 = 6,000 euros
Improved increased limit in La Palma (70%): 10,000 x 0.7 = 7,000 euros
Maximum limit to be applied to the CI: Improved Increased Limit: 10,000 x 0.7 = 7,000 euros

Deductions to be applied in 2021:

Deduction for investments in La Palma: 500 euros
Deduction for investments in Tenerife: 6,000 euros

Although the taxpayer can choose how to apply this deduction for investments in the Canary Islands, making numerous combinations and always respecting the established increased limits, in this case, the most advantageous option for company "C" is to first apply the deduction for investments made in La Palma, being able to deduct the total amount invested of 500 euros. Furthermore, company "C" can apply the deduction for investment in Tenerife, taking into account that, although the maximum limit to be applied to both deductions is the improved increased limit of 70% on the full quota (7,000), the deductions made in the rest of the Canary Islands (in this case, in Tenerife) cannot benefit from the improved increased limit of the three smaller islands (in this case, La Palma), so they will apply the unimproved increased limit of 60%. Thus, although the maximum limit to be applied is 7,000 euros, company "C" cannot deduct the amount of 6,500 euros for the investments made in Tenerife, since it exceeds its increased limit of 60% on the full quota (6,000).

Deductions to be applied in future years:

Deduction for investments in La Palma: 0 euros
Deduction for investments in Tenerife: 3,000 euros

Example 4

Company "D" with tax domicile in the Canary Islands, has incurred R&D expenses in different islands of the Canary Islands in the year 2021, for which it has generated the following deductions for research and development activities under article 35 of the LIS:

Deductions generated in 2021:

Deduction for R&D activities in Tenerife: 500 euros
Deduction for R&D activities in La Palma: 400 euros

Note: We assume that company "D" has not generated any other deductions during the year.

This company has an adjusted total share (box [00582] on page 14 of form 200) of 10,000 euros

Calculation of the limits to be applied: 10% 10,000 = 1,000 euros
Total amount of deductions on both islands: 500 euros + 400 euros = 900 euros
900 euros < 1,000 euros
Increased limit to apply in Tenerife: 60%
Increased limit to apply in La Palma: 70%

In this case, to determine the limits to be applied in each of the islands, all the expenses incurred in R&D in the Canary Islands have been taken into account (without distinguishing the part corresponding to the three smaller islands from that of the rest of the Canary archipelago). Thus, the limit to be applied in Tenerife will be 60%, which rises to 70% in La Palma, since the amount of the deduction for research and development activities (900 euros), which corresponds to expenses and investments made in the tax period itself, does not exceed 10% of the adjusted total tax rate (1,000 euros).

Deductions to be applied in 2021:

Increased limit in Tenerife (60%): 10,000 x 0.6 = 6,000 euros
Improved increased limit in La Palma (70%): 10,000 x 0.7 = 7,000 euros
Maximum limit to be applied to the CI: Improved Increased Limit: 10,000 x 0.7 = 7,000 euros
Deduction for R&D activities in Tenerife: 500 euros
Deduction for R&D activities in La Palma: 400 euros

Although the taxpayer can apply this deduction for investments in the Canary Islands by making numerous combinations and always respecting the established increased limits, the option described here is the most advantageous for applying the maximum deduction.

Deductions to be applied in future years:

There are no deductions pending to be applied in future years.

Example 5

Company "E" with tax domicile in the Canary Islands, has incurred R&D expenses in different islands of the Canary Islands in the year 2021, for which it has generated the following deductions for research and development activities under article 35 of the LIS:

Deductions generated in 2021:

Deduction for R&D activities in Tenerife: 9,500 euros
Deduction for R&D activities in La Palma: 12,000 euros

Note: We assume that company "E" has not generated any other deductions during the year.

This company has an adjusted total share (box [00582] on page 14 of form 200) of 10,000 euros

Calculation of the limits to be applied = 10% 10,000 = 1,000 euros
Total amount of deductions on both islands: 9,500 euros + 12,000 euros = 21,500 euros
21,500 euros > 1,000 euros
Maximum limit to be applied in Tenerife: 90%
Increased limit to apply in La Palma: 100%

In this case, to determine the limits to be applied in each of the islands, all the expenses incurred in R&D in the Canary Islands have been taken into account (without distinguishing the part corresponding to the three smaller islands from that of the rest of the Canary archipelago). Thus, the limit to be applied in Tenerife will be 90%, which rises to 100% in La Palma, since the amount of the deduction for research and development activities (21,500 euros), which corresponds to expenses and investments made in the tax period itself, exceeds 10% of the adjusted total tax rate (1,000 euros).

Deductions to be applied in 2021:

Increased limit in Tenerife (90%): 10,000 x 0.9 = 9,000 euros
Improved increased limit in La Palma (100%): 10,000 x 0.10 = 10,000 euros
Maximum limit to be applied to the CI: Improved Increased Limit: 10,000 x 0.10 = 10,000
Deduction for R&D activities in Tenerie: 0 euros
Deduction for R&D activities in La Palma: 10,000 euros

Deductions to be applied in future years:

Deduction for R&D activities in Tenerife: 9,500 euros
Deduction for R&D activities in La Palma: 2,000 euros