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Practical Handbook for Companies 2021

Taxation of branches in the Canary Islands Special Zone of entities taxed under the consolidated tax system

With effect for tax periods beginning on or after 1 January 2018, Law 8/2018, of 5 November, which amends Law 19/1994, of 6 July, amending the Canary Islands Economic and Fiscal Regime, adds a new additional fourteenth additional provision, , , which regulates the application of the tax consolidation regime to entities with branches in the Canary Islands Special Zone.

This fourteenth additional provision bis of Law 19/1994, of 6th July, amending the Canary Islands Economic and Fiscal Regime, establishes that the application of the special tax rate established in Article 43 of this Law in the case of branches in the Canary Islands Special Zone of entities with tax residence in Spain shall not prevent such entities from forming part of a tax group which applies the tax consolidation regime provided for in Chapter VI of Title VII of Law 27/2014, of 27th November, on Corporate Income Tax.

Notwithstanding the foregoing, that part of the taxable income of the entity forming part of a tax group which is attributable to the Canary Islands Special Zone branch shall not be included in the individual taxable income of the entity for the purposes of determining the taxable income of the tax group, and shall be subject to separate declaration under such terms as may be determined in accordance with the regulations.

Due to this novelty introduced by this provision and in the absence of regulatory development, taxpayers who have branches in the Canary Islands Special Zone (ZEC) of entities with tax residence in Spain that form part of a tax group that applies the tax consolidation regime, will have to file two forms 200, as the law provides that they will be declared separately:

  1. Form 200 to declare the part of the tax base to which the ZEC zone tax rate is to be applied:

    Box [00079] "ZEC entities in tax consolidation" on page 1 of Form 200 should be ticked, without indicating that it is part of a tax group, i.e. without ticking boxes [00009] "Parent entity of tax group" or [00010] "Subsidiary entity of tax group" on page 1 of Form 200.

    This declaration must be completed only with data relating to the Canary Islands Special Zone branch of entities with tax residence in Spain, both on the pages dedicated to the Balance Sheet, Profit and Loss Account and Statement of Changes in Net Equity, as well as the data relating to liquidation.

  2. Form 200 for the part of the tax base that is not taxed at the special rate and which is going to apply the special consolidation regime:

    Box [00009] "Parent entity of tax group" or box [00010] "Subsidiary entity of tax group", as the case may be, included on page 1 of Form 200, should be ticked without indicating that the special tax rate applies to the part of the branch in the Canary Islands Special Zone, i.e. without ticking box [00079] "ZEC Entities in tax consolidation".

    This declaration should only be completed with data relating to the entity forming part of a tax group and which are not attributable to the branch in the Canary Islands Special Zone, that is to say, the data relating to the individual tax base of the entity for the purposes of determining the tax base of the tax group should be included, both on the pages dedicated to the Balance Sheet, Profit and Loss Account and Statement of Changes in Net Equity, as well as the data relating to the liquidation of the part that will apply the tax consolidation regime.