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Practical Handbook for Companies 2021

International legal double taxation:Tax paid by taxpayer

Article 31 of the LIS regulates this deduction for international double taxation, which applies to positive income obtained and taxed abroad by entities resident in Spanish territory.

In the event that such income is taxed in the country where it was obtained and subsequently, when included in the taxable income of the taxpayer, is taxed for corporate income tax purposes in Spain, double taxation occurs, which the application of this deduction is intended to avoid.

For these purposes, article 31 of the LIS establishes that when the taxable income of the taxpayer includes positive income (from 1 January 2017, only positive income) obtained and taxed abroad, the lesser of the following two amounts shall be deducted from the gross tax payable:

  1. The actual amount of the tax paid abroad on account of the tax of an identical or analogous nature to this Tax.

    Tax not paid because of exemptions, allowances or any other tax benefit will not be deducted.

    If an agreement to avoid double taxation is in force, the deduction may not exceed the amount specified therein.

  2. The total amount of tax that would be payable in Spain if the income had been obtained in this country.

    A tener en cuenta:

    In determining this amount, account must be taken, where applicable, of the reduction of income from certain intangible assets regulated in article 23 of the LIS.

Consequently, the entire amount of tax paid abroad will be included in the tax base, even if part of it is not deductible in the gross tax liability.

The part of the amount of tax paid abroad that is not deductible in the gross tax liability by application of the provisions of the previous section, provided that it corresponds to the performance of economic activities abroad, shall be considered a deductible expense.

In the event that the taxpayer has obtained in the tax period several incomes from abroad, the deduction will be made by grouping those from the same country, except for income from permanent establishments, which will be computed separately for each of these.

The determination of income obtained abroad through a permanent establishment will be carried out in accordance with the provisions of article 22.5 of the LIS.

For a better understanding of the application of the deduction for international double taxation in law, see the following case study.

Example:

The reporting entity, resident in Spain, which is taxed at the general tax rate, has carried out operations in a foreign country "X" during 2021, without the intermediation of a permanent establishment, for which it has obtained positive income in an amount equivalent to 12,000 euros.The tax equivalent to corporate income tax paid abroad on this income amounted to the equivalent of 5,000 euros.

The filer calculates the deduction for international double taxation as follows:

Positive income:12,000

More:

Tax paid abroad:5,000

Basis of calculation:17,000

Equivalent fee (25% s/ 17.000):4,250

Applicable deduction:4,250 (the lower of 4,250 and 5,000)

Reflecting the above data in the international double taxation deduction determination scheme:

Country/Establishment
permanent
Positive income (R)Tax
foreign (E)
B = R + E
Basis of calculation
C = B x type
Equivalent quota
Applicable deduction
(the lesser of E and C)
Country "X 12,000 5,000 17,000 4,250 4,250

Note: Pursuant to the provisions of Article 31.2 of the LIS, that part of the amount of tax paid abroad which is not deductible in the gross tax liability by application of the provisions of paragraph 1 of the said article, provided that it corresponds to the performance of economic activities abroad, shall be considered a deductible expense.Therefore, in this example:

Deductible expense:5.000 - 4.250 = 750