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Practical Handbook for Companies 2021

Deduction for the avoidance of international economic double taxation:dividends and shares in profits

Article 65.Three of Law 11/2020, of 30 December, on the General State Budget for 2021, with effect for tax periods beginning on or after 1 January 2021 that have not ended on the entry into force of this law (01-01-2021) and valid indefinitely, introduces the following amendments to the LIS:

  1. Paragraph Three amends letter a) of Article 32.1 of the LIS, which regulates the deduction for international double taxation on dividends or shares in profits paid by a non-resident entity in Spanish territory, eliminating the alternative requirement that the acquisition value of the shareholding 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 holdings acquired in tax periods commencing prior to 1 January 2021, which have 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 amends section 4 of Article 32 of the LIS to add that in order to calculate the gross tax payable in Spain on the income referred to in that section if it had been obtained in Spanish territory, the dividends or shares in profits shall be reduced by 5 per cent as management expenses in respect of such shares, unless the circumstances regulated in Article 21.11 of the LIS apply.The excess over this limit shall not be considered a tax deductible expense, without prejudice to the provisions of article 31.2 of the LIS.