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Practical Handbook for Companies 2021

Income to be attributed to the taxable base

Regulation: Article 100.2 and 100.3 LIS

  1. Article 100.2 of the LIS establishes that taxpayers shall impute the total income obtained by the non-resident entity in Spanish territory or the permanent establishment of the corresponding organisation of material and personal means for its realisation, even if the operations are of a recurring nature.

    Total income shall be understood to be the amount of the taxable income resulting from applying the criteria and principles established in the Corporate Income Tax Act, as well as in the other provisions relating to this tax for its determination.

    The imputation referred to in this section, will not apply when the taxpayer proves that the aforementioned operations are carried out with the material and personal resources existing in a non-resident entity in Spanish territory belonging to the same group, within the meaning of Article 42 of the Commercial Code, regardless of its residence and the obligation to prepare consolidated annual accounts, or that its incorporation and operation respond to valid economic motives.

  2. In the event that the provisions of the previous section are not applied, the provisions of Article 100.3 of the LIS shall apply, according to which only positive income obtained by a non-resident entity from each of the following sources shall be imputed:

    1. Ownership of rural and urban real estate or rights in rem thereon, unless they are assigned to an economic activity, or assigned for use to non-resident entities belonging to the same group, within the meaning of Article 42 of the Commercial Code, irrespective of their residence and the obligation to prepare consolidated annual accounts, and are also assigned to an economic activity.

    2. Participation in the equity of any type of entity and transfer to third parties of own capital, under the terms provided for in sections 1 and 2 of Article 25 of Law 35/2006, of 28 November, on Personal Income Tax and partial amendment of the laws on Corporate Income Tax, Non-Resident Income Tax and Wealth Tax.

      Positive income from the following financial assets shall not be included in this point (b):

      • Those held to comply with legal and regulatory obligations arising from the exercise of economic activities.

      • Those incorporating credit rights arising from contractual relations established as a consequence of the development of economic activities.

      • Those held as a result of the exercise of intermediation activities on official securities markets.

      • Those held by credit institutions and insurance companies as a result of the exercise of their activities, without prejudice to the provisions of point (i) below.

        The positive income deriving from the transfer of equity capital to third parties shall be deemed to derive from the pursuit of credit and financial activities referred to in (i) below when the transferor and the transferee belong to a group of companies within the meaning of Article 42 of the Commercial Code, irrespective of residence and the obligation to draw up consolidated annual accounts, and at least 85 per cent of the income of the transferee derives from the pursuit of economic activities.

    3. Capitalisation and insurance operations, which have the institution itself as beneficiary.

    4. Industrial and intellectual property, technical assistance, movable property, image rights and leasing or subleasing of businesses or mines, under the terms established in article 25.4 of Law 35/2006.

    5. Transfer of the assets and rights referred to in letters a), b), c) and d) above that generate income.

    6. Derivative financial instruments, except those designated to hedge a specifically identified risk arising from the conduct of economic activities.

    7. Insurance activities, credit activities, financial leasing operations and other financial activities unless it is income obtained in the exercise of economic activities, without prejudice to the provisions of point (i) below.

    8. Transactions in goods and services with related persons or entities within the meaning of Article 18 of the LIS, in which the non-resident entity or establishment adds little or no economic value.

    9. Credit, financial, insurance and service provision activities carried out, directly or indirectly, with persons or entities resident in Spanish territory, and related within the meaning of Article 18 of the LIS, insofar as they determine tax-deductible expenses in these resident persons or entities.

It should be noted that only positive income from each of the above sources will be included in the tax base.