International economic double taxation: dividends and shares in profits

Article 32 of the LIS regulates this deduction for international double taxation with which it attempts to avoid international double taxation that arises in cases where a parent company resident in Spanish territory receives dividends or shares in profits from its subsidiary entities resident abroad, and the profit obtained has been taxed in the territory of the subsidiary and subsequently, is taxed in the territory of the parent company when it receives it.

For these purposes, article 32 of the LIS establishes that this deduction will be applied when the taxable base includes dividends or profit shares paid by an entity not resident in Spanish territory.

The amount of this deduction will be the tax actually paid by the entity not resident in Spanish territory with respect to the profits from which the dividends are paid, in the corresponding amount of such dividends, provided that said amount is included in the taxpayer's tax base.

To apply this deduction, the following requirements must be met:

1. That the direct or indirect participation in the capital of the non-resident entity is at least 5 percent , or that the acquisition value of the participation is greater than 20 million euros (this last requirement is only applicable for a period of 5 years to participations acquired in tax periods beginning before January 1, 2021).

2. That the participation been held uninterruptedly during the year prior to day on which the profit to be distributed is payable or, failing that, that it is held for the time necessary to complete one year. To calculate the time period, you also need to take into account the period in which the holding has been uninterruptedly maintained by other entities that fulfil the circumstances referred to in article 42 of the Code of Commerce to form part of the same group of companies, regardless of the place of residence and the obligation to draw up consolidated annual accounts.

In the event of distribution of reserves, the designation contained in the corporate agreement will be observed and, failing that, the last amounts paid to said reserves will be considered applied.

Dividends or profit shares will be considered those derived from securities representing the capital or equity of entities, regardless of their accounting consideration.

This deduction will not apply in relation to dividends or profit shares received, the amount of which must be delivered to another entity on the occasion of a contract that deals with the securities from which they originate, recording an expense to that effect. The entity receiving said amount may apply said deduction to the extent that it keeps the accounting record of said securities and they meet the conditions established for this.

With effect for tax periods beginning up to 31 December 2016 , the negative income obtained from the transfer of a share in an entity that had previously been transferred by another entity that meets the circumstances referred to in Article 42 of the Commercial Code to form part of the same group of companies with the taxpayer, regardless of residence and the obligation to prepare consolidated annual accounts, will be reduced by the amount of the positive income obtained from the previous transfer and to which an exemption regime had been applied.