Deduction to avoid international economic double taxation: dividends and shares in profits

Article 65.Three of Law 11/2020, of December 30, on the General State Budgets for the year 2021, with effects for tax periods that begin on January 1, 2021 that have not concluded as of entry into force of this law (01-01-2021) and validity indefinitely, introduces the following modifications in the LIS :

1. Section Three modifies letter a) of article 32.1 of the LIS, which regulates the deduction for international double taxation in dividends or participation in profits paid by a non-resident entity in Spanish territory, eliminating the alternative requirement of that the acquisition value of the participation is greater than 20 million euros.

2. In relation to the above, section Six adds to the LIS the fortieth transitional provision to regulate a transitional regime to apply for a period of 5 years to the shares acquired in the tax periods beginning with prior to January 1, 2021, that had an acquisition value of more than 20 million euros, without reaching the 5 percent percentage established in article 32.1 a) of the LIS.

3. Finally, section Three also modifies section 4 of article 32 of the LIS to add that to calculate the full amount that would be paid in Spain for the income referred to in said section if they had been obtained in Spanish territory, the dividends or participations in profits will be reduced by 5 percent as management expenses related to said participations, unless the circumstances regulated in article 21.11 of the LIS occur. The excess over said limit will not be considered a tax-deductible expense , without prejudice to the provisions of article 31.2 of the LIS.