Taxable base

Regulation: Article 18 TRLIRNR

The taxable base of the permanent establishment will be determined in accordance with the provisions of the general regime of the Corporate Income Tax Law, taking into account the existence of peculiarities in the formation of the taxable base inherent to the Non-Resident Income Tax. The permanent establishment is subject to the negative tax base compensation regime.

Among the specialties that permanent establishments must take into account to determine the tax base, the following can basically be noted:

1. Integration into the tax base of the difference between the normal market value and the book value of the assets assigned to a permanent establishment located in Spanish territory:

   1. That ceases its activity.

   2. Which transfers the assets assigned to a foreigner.

   3. Which moves its activity abroad.

   With effect for tax periods beginning on or after 1 January 2021, in the cases provided for in letters b) and c) of this section, in the case of assets transferred to a Member State of the European Union or the European Economic Area that has entered into an agreement with Spain or the European Union on mutual assistance in the collection of tax credits, the possibility for the taxpayer to defer payment of the exit tax until the affected assets were transferred to third parties is replaced by the possibility of splitting said payment, also at the request of the taxpayer, into equal annual fifths .

   The exercise of option will be carried out exclusively in the tax return corresponding to the tax period in which the transfer of assets provided for in letter b) of this section takes place, or in the tax return corresponding to the tax period concluded on the occasion of the transfer of activity, in the case provided for in letter c) of this section, and payment of the first installment must be made within the voluntary declaration period corresponding to said tax period.

   The maturity and enforceability of each of the four remaining annual fractions, together with the late payment interest accrued for each of them, will occur successively, one year after the end of the voluntary declaration period corresponding to the tax period provided for in the previous paragraph.

   If the permanent establishment chooses to split the payment of the exit tax, it must complete Form 200 in the manner indicated in Chapter 6 of this Practical Manual.

   Finally, it should be noted that in cases of transfer to Spain of assets or the transfer of an activity that has been subject to exit taxation in a Member State of the European Union, the value determined by the Member State of departure will be considered the tax value in Spain, unless it does not reflect the market value. However, the difference between the market value and the tax value of the transferred assets, which are related to the financing or delivery of guarantees or to comply with prudential capital requirements or for liquidity management purposes, will not be included in the tax base, provided that it is foreseen that they must return to Spanish territory to be affected within a maximum period of one year.

2. Application of the rules of linkage for operations carried out by the permanent establishment with the head office, with other permanent establishments of the same head office or with other persons or entities linked to the head office or its permanent establishments, whether located in Spanish territory or abroad.

   In relation to the consideration of related party transactions the provisions of article 18.2 of the LIS must also be taken into account, as well as article 15.2 of the TRLIRNR.

3. Deductibility of the portion of management and general administration expenses charged by the head office to the permanent establishment, provided that they are reflected in the financial statements of the permanent establishment and are charged in a continuous and rational manner. In order to determine these expenses, taxpayers are expected to be able to request the tax authorities to determine the valuation of the part of management and general administration expenses that are deductible, in accordance with the provisions of article 18.9 of the LIS.

4. ## In no case will the amounts corresponding to the cost of the entity's equity capital that are directly or indirectly assigned to the permanent establishment be imputable.

5. With effect for tax periods beginning on or after January 1, 2020, and not ending by March 11, 2022, Law 5/2022, of March 9, introduces a new regulation of hybrid mismatches .

   Consequently, are not considered deductible:

   • Expenses corresponding to operations carried out with the head office or with one of its permanent establishments, as well as with a person or entity linked to said head office or one of its permanent establishments, which, as a consequence of a tax difference in its attribution between the permanent establishment and its head office, or between two or more permanent establishments, do not generate income.

   • Estimated expenses for internal operations with the head office or with one of its permanent establishments or those of a related person or entity that, due to the legislation of the country or territory of the beneficiary, do not generate income, in the part that is not offset by income that generates double inclusion income. The amount of non-deductible expenses may be deducted in subsequent tax periods ending within the next three years to the extent that it is offset by income that generates double-inclusion income.

   • Expenses corresponding to operations of the permanent establishment that are also tax deductible at the head office, in the part that is not offset by income from said permanent establishment or related entity that generates double-inclusion income. The amounts not deducted may be deducted in the tax periods ending within three years following the conclusion of the tax period in which such expenses were accrued, to the extent that they are offset by income from the permanent establishment or related entity that generates double-inclusion income.

   • Expenses corresponding to operations carried out with a permanent establishment of the head office or of a related person or entity that, as a result of not being fiscally recognized by the country or territory of location, do not generate income.

   For the purposes of the provisions of this point, as well as in any other case of hybrid asymmetry regulated in article 15 bis of the LIS that is applicable:

   • Income is considered to generate double inclusion income when it is subject to taxation under the TRLIRNR and the legislation of the other country or territory.

   • The reference to related persons or entities shall include those provided for in articles 15.2 and 18.7 of the TRLIRNR.