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Practical Manual for Companies 2021.

International tax transparency

Article 65.Five 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 ended upon the entry into force of this Law (01-01-2021) and indefinite validity, modified sections 10 and 12 of article 100 of the LIS (subsequently, Law 11/2021, of July 9, on measures to prevent and combat tax fraud, changed the numbering and said sections became numbers 9 and 11, respectively):

  1. Section 10 (currently, section 9) is amended, establishing that dividends or profit shares will not be included in the tax base in the part that corresponds to the positive income that has been included in the tax base, incorporating that for these purposes, the amount of dividends or profit shares will be reduced by 5 percent as management expenses related to said shares , unless the circumstances established in article 21.11 of the LIS occur.

  2. Section 12 of article 100 of the LIS (currently, section 11) is also amended, which establishes that in order to calculate the income derived from the transfer of the participation, direct or indirect, the acquisition value will be increased by the amount of the social benefits that, without effective distribution, correspond to income that would have been attributed to the partners as income from their shares or participations in the period of time between their acquisition and transfer, incorporating, for these purposes, that the amount of the social benefits referred to in this section will be reduced by 5 percent as management expenses related to said participations .

Subsequently, Law 11/2021, of July 9, on measures to prevent and combat tax fraud, with effects for tax periods starting on January 1, 2021, with the aim of transposing the Directive ( EU ) 2016/1164, of the Council, of July 12, 2016, introduces the following modifications to article 100 of the LIS:

  1. Section 1 is modified to establish that the imputation of income that occurs through the application of the international tax transparency regime not only affects those obtained by entities in which the taxpayer has a stake, but also those obtained by its permanent establishments abroad . It is also specified in section 7 that, in the case of permanent establishments, the imputation will be carried out in the tax period in which the income is obtained. Likewise, section 12 is modified to add the documentation that must be provided along with the corporate tax return, for the income obtained by said permanent establishments.

  2. Section 2 is also modified to eliminate rule relating to dividends, shares or income derived from the transfer of shares contained in the previous article 100.4 of the LIS.

  3. Likewise, section 3 is modified to introduce various types of income that may be subject to imputation in this international tax transparency regime, such as those derived from financial leasing operations or from insurance, banking and other financial activities. Furthermore, in relation to income from credit, financial, insurance and service provision activities regulated in letter i) of article 100.3 of the LIS, the percentage by which they are not included is modified, going from 50 percent to two thirds.

  4. Rule section 4 is deleted by virtue of which the income provided for in letters b) and e) of the original wording of section 3 of article 100 of the LIS was not imputed, when it involves securities derived from participation in the capital or equity of entities that grant at least 5 percent of the capital of an entity and are held for a minimum period of one year, for the purpose of directing and managing the participation.

  5. Section 5 specifies that the income from letter i) of section 3 of article 100 of the LIS will be taken into consideration for the purposes of determining whether the sum of the amounts of the income provided for in this regime is less than 15 percent of the income obtained by the non-resident entity or permanent establishment.

  6. Section 15 (previously Section 16) is amended by the reference to proof that the constitution and operation respond to valid economic reasons. It is also noted that the regulation provided for in this article is not applicable when the non-resident entity or permanent establishment is resident or located in another Member State of the European Union or is part of the European Economic Area Agreement.