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Practical Handbook for Companies 2021

Gross tax base

Regulation: Article 18 TRLIRNR

The taxable base of the permanent establishment shall be determined in accordance with the provisions of the general regime of the Corporate Income Tax Act, taking into account the existence of peculiarities in the formation of the taxable base inherent in the Non-Resident Income Tax.The permanent establishment is subject to the system for offsetting tax losses.

Among the specialities that permanent establishments must take into account when determining the tax base, the following are basically worth mentioning:

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

    1. Who ceases his activity.

    2. Transferring the assets and liabilities abroad.

    3. That relocates 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 of the European Economic Area which has concluded an agreement with Spain or with the European Union on mutual assistance in the recovery of tax debts, the possibility for the taxpayer to defer payment of the exit tax, until the assets concerned are transferred to third parties, is replaced by the possibility of dividing such payment, also at the request of the taxpayer, by equal annual fifths.

    The exercise of the option shall be made exclusively in the tax return corresponding to the tax period in which the transfer of assets takes place as provided for in letter b) of this section, or in the tax return corresponding to the tax period ending on the occasion of the transfer of activity, in the case provided for in letter c) of this section, and payment of the first fraction shall be made in the voluntary tax return period corresponding to the said tax period.

    The due date and payability of each of the four remaining annual instalments, together with the late payment interest accrued for each of them, shall occur successively, one year after the end of the voluntary declaration period corresponding to the tax period foreseen in the previous paragraph.

    If the permanent establishment chooses to pay the exit tax in instalments, Form 200 should be completed as indicated in Chapter 6 of this Practical Handbook.

    Finally, it should be borne in mind that in cases of transfer to Spain of assets or the transfer of the activity that has been subject to exit taxation in a Member State of the European Union, the value determined by the Member State of exit will be considered as 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 assets transferred, which are related to the financing or provision 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 linking rules for transactions 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 they are located in Spanish territory or abroad.

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

  3. Deductibility of the part of the management and general administrative expenses allocated by the head office to the permanent establishment, provided that they are reflected in the accounting statements of the permanent establishment and are allocated on a continuous and rational basis.In order to determine these expenses, taxpayers may request the tax authorities to determine the value of the part of the management and general administration expenses that are deductible, in accordance with the provisions of Article 18.9 of the LIS.

  4. Under no circumstances shall the amounts corresponding to the cost of the entity's own capital directly or indirectly assigned to the permanent establishment be chargeable to.

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

    Consequently, is not considered deductible:

    • Expenses relating to transactions with the head office or with one of its permanent establishments, as well as with a person or entity related to the head office or one of its permanent establishments, which, as a result of a tax difference in their attribution between the permanent establishment and its head office, or between two or more permanent establishments, do not generate income.

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

    • Expenses relating to the operations of the permanent establishment which are also tax deductible at the head office, to the extent that they are not offset by income of that permanent establishment or related entity which generates double-inclusion income.Amounts not deducted may be deducted in tax periods ending three years after the end of the tax period in which such expenses were incurred, to the extent that they are offset against income of the permanent establishment or related entity which generates double-inclusion income.

    • Expenditure in respect of transactions with a permanent establishment of the head office or of a related person or entity which, because it is not recognised for tax purposes by the country or territory of location, does 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 taxable under both the TRLIRNR and the law 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.

A tener en cuenta:

The Non-Resident Income Tax Act establishes specific rules for determining the tax base in cases where the operations carried out in Spain by a permanent establishment do not complete a business cycle (Article 18.3 of the TRLIRNR), or where the activity of the permanent establishment in Spain consists of construction, installation or assembly work lasting more than six months (Article 18.4 of the TRLIRNR).