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 Budget for the year 2021, with effect for tax periods beginning on or after January 1, 2021 that have not concluded upon the entry into force of this law (01-01-2021) and indefinite validity, 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 on dividends or profit shares paid by an entity not resident in Spanish territory, eliminating the alternative requirement that the acquisition value of the share be 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 be applied for a period of 5 years to the shares acquired in the tax periods beginning before January 1, 2021, which had an acquisition value greater 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 in order to calculate the full amount that would have to be paid in Spain for the income referred to in said section if it had been obtained in Spanish territory, the dividends or shares in profits will be reduced by 5 percent as management expenses related to said shares, 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.