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Practical Handbook for Companies 2021

Amount of reduction

Regulation: Article 20 Law 49/2002

Taxpayers shall be entitled to deduct from the gross tax payable, less the deductions and allowances provided for in Chapters II, III and IV of Title VI of the LIS, 35 per cent of the basis for the deduction.

The amounts corresponding to the tax period not deducted may be applied in the assessments for the tax periods ending in the immediate and subsequent 10 years.

If in the two immediately preceding tax periods donations, gifts or contributions with the right to deduct have been made in favour of the same entity for an amount equal to or greater, in each of them, than in the previous tax period, the percentage of deduction applicable to the deduction base in favour of the same entity shall be 40 per cent.

The basis for this deduction may not exceed 10 per cent of the taxable base for the tax period.

Amounts in excess of this limit may be carried forward to tax periods ending in the immediate and subsequent 10 years.

Important:

The article 22 of Law 49/2002 establishes that the General State Budget Law may establish a list of priority patronage activities and beneficiary entities.In relation to these activities and beneficiary entities, the General State Budget Law may raise by a maximum of five percentage points, the percentages and limits of the deduction for donations of Law 49/2002.For this purpose, the percentage of 35 per cent applicable to this deduction may be increased to 40 per cent and the increased percentage of 40 per cent to 45 per cent. In addition, the ceiling of 10 percent of the taxable base for the tax period will be raised to 15 percent.

Example:

Question:

Company A has made the following donations to the same foundation to which the special regime provided for in Law 49/2002 applies.

  • Fiscal year 2018It does not make donations.
  • Fiscal year 2019Make a donation of 1,000 euros.
  • Fiscal year 2020Make a donation of 1,500 euros.
  • Fiscal year 2021Make a donation of 1,300 euros.

In the year 2021, can company A apply the increased percentage provided for in Article 20 of Law 49/2002 to the deduction base?

Response:

The second paragraph of Article 20 of Law 49/2002 stipulates that the increased deduction percentage shall apply if in the two immediately preceding tax periods donations, gifts or contributions with the right to deduct have been made to the same entity for an amount equal to or greater, in each of them, than in the preceding tax period.

Accordingly, in 2021, amounts donated in 2020 and 2019 must be taken into account, but also those made in 2018, insofar as the rule requires that in the two immediately preceding tax periods donations were made to an entity in an amount equal to or greater than that of the previous tax period (in this case, for 2019, donations made in the previous year, i.e. 2018, would have to be analysed).

Therefore, as company A did not make any donation in 2018, it will not be able to apply the increased deduction percentage provided for in Article 20 of Law 49/2002 to the donation made in 2021.

In addition to what is stated in the previous paragraph in relation to the financial year 2018, company A must take into account that for the application in the financial year 2021 of the increased rate of deduction, it is necessary that in the financial years 2019 and 2020 donations have been made in favour of the same entity for an amount equal to or greater, in each of them, than that of the previous financial year.For the donation made in 2021, it is not required for the application of the increased rate that it be higher than the donation made in 2020.