Exemption of foreign income
article 22 of the LIS regulates the exemption of certain income obtained abroad through a permanent establishment.
A. Completion of form 200
In application of the provisions of said article, the taxpayer must make the following adjustments in boxes [00256] and [00278] "Exemption of income abroad (art. 22 LIS)" from page 13 of model 200:
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article 22.1 of the LIS establishes the exemption of positive income obtained abroad through a permanent establishment located outside Spanish territory, as well as such as those derived from the transfer of a permanent establishment or the cessation of its activity, when the permanent establishment has been subject and not exempt to a tax of a nature identical or analogous to this Tax with a nominal rate of at least 10 percent. cent, in the terms provided in article 21.1 of said Law.
Consequently, when the entity obtains these positive exempt incomes by application of the provisions of article 22.1 of the LIS, it must include the amount thereof in box [00278] of reduction of the accounting result.
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article 22.2 of the LIS already established that income obtained abroad through a permanent establishment will not be included in the tax base, but for tax periods beginning on or after January 1, 2017, it establishes that negative income derived from the transfer of the permanent establishment will not be included in the tax base either.
Therefore, based on the provisions of this article, the entity must include in the box [00256] of increases, the amount corresponding to said negative income.
However, article 22.2 of the LIS establishes in its last paragraph that ## negative income # will be tax deductible generated in case of cessation of the permanent establishment. In this case, the amount of the negative income will be reduced by the amount of net positive income acquired previously, and which was subject to the application of an exemption or deduction regime to avoid double taxation, for the amount thereof.
Consequently, the entity must include this amount in box [00256] of increases.
Explanatory notes regarding articles 22.1 and 22.2 of the LIS:
article 22.3 of the LIS establishes that an entity will be considered to operate through a permanent establishment abroad when, for any reason, it disposes of outside the Spanish territory, on a continuous or habitual basis, of facilities or workplaces in which it carries out all or part of its activity, or acts there through an agent authorized to contract in the name and on behalf of the taxpayer, who regularly carries out said powers. In particular, it is understood that those referred to in letter a) of section 1 of article 13 of the Non-Resident Income Tax Law constitute permanent establishments. If the permanent establishment is located in a country with which Spain has signed an agreement to avoid international double taxation, which applies to it, it is subject to whatever results from it.
Likewise, article 22.4 of the LIS establishes that a taxpayer will be considered to operate through different permanent establishments in a given country, when they carry out clearly distinguishable activities and the management of these is carried out separately.
Finally, according to the provisions of article 22.5 of the LIS , income from a permanent establishment will be considered those that it could have obtained if it were a distinct and independent entity, taking into account the functions performed, the assets used and the risks assumed by the entity through the permanent establishment.
For these purposes, the estimated income from internal operations with the entity itself will be taken into account in those cases in which this is established in an agreement to avoid international double taxation that is applicable.
article 22.6 of the LIS establishes that the regime provided for in said article will not be applied when, with respect to income obtained abroad, the circumstances provided for in occur. article 21.9 of the LIS . The option referred to in letter c) of article 21.9 of the LIS will be exercised by each permanent establishment outside Spanish territory, even in the event that several exist in the territory of a single country.
B. Transitional regime ( DT 16.4 and 16.5 of the LIS)
In relation to the regime regulated in article 22.1 and 2 of the LIS, we must take into account the transitional regime provided for in section 4 of the sixteenth transitional provision of the LIS according to which, in the event that a permanent establishment had obtained net negative income that had been integrated into the tax base of the entity in tax periods beginning with Prior to January 1, 2013, the exemption provided for in article 22 of the LIS or the deduction referred to in article 31 of this Law will only apply to positive income obtained with subsequently from the moment in which they exceed the amount of said negative income.
Likewise, section 5 of the sixteenth transitional provision of the LIS establishes another transitional regime for cases of transfer of a permanent establishment in tax periods that begin as of January 1, 2016, according to which the tax base of the transferring entity resident in Spanish territory will increase by the amount of the excess of the net negative income generated by the permanent establishment in tax periods beginning before January 1, 2013 on the net positive income generated by the permanent establishment in tax periods beginning after this date, with the limit of positive income derived from its transmission.
| Origin of income | Tax periods prior to 1/1/2017 | Tax periods after 1/1/2017 | |
|---|---|---|---|
| Obtained through EP | Positive income | Exempt | Exempt |
| Negative income | They are NOT integrated into BI | They are NOT integrated into BI | |
| EP transmission derivatives | Positive income | Exempt | Exempt |
| Negative income | YES they are integrated into BI If the acquirer is a group entity, there is a deferral regime (art. 11.11 LIS) |
They are NOT integrated into BI The deferral regime of art. 11.11 LIS |
|
| Derivatives of cessation of PE | Positive income | Exempt (although not expressly indicated) |
Exempt |
| Negative income | YES they are integrated into BI | YES they are integrated into BI | |
Notes to the box:
Exempt income if EP subject and not exempt to a tax analogous to Corporate Tax with a nominal rate >10%.
Negative income that is integrated into BI is reduced in accordance with art. 22. LIS.