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Practical Handbook for Companies 2021

International fiscal transparency

Article 65.Five 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 in force indefinitely, amended sections 10 and 12 of Article 100 of the LIS (subsequently, Law 11/2021, of 9 July, on measures to prevent and combat tax fraud, changed the numbering and these sections became numbers 9 and 11, respectively):

  1. Section 10 (currently section 9) is amended, which establishes that dividends or shares in profits will not be included in the tax base in the part corresponding to the positive income that has been included in the tax base, adding that for these purposes, the amount of the dividends or shares in profits will be reduced by 5 per cent for management expenses relating to such shares, unless the circumstances established in article 21.11 of the LIS are met.

  2. Section 12 of Article 100 of the LIS is also amended (currently section 11), which establishes that in order to calculate the income derived from the transfer of the direct or indirect shareholding, the acquisition value shall be increased by the amount of the company profits which, without actual distribution, correspond to income which has been imputed to the shareholders as income from their shares or holdings in the period between their acquisition and transfer, incorporating for these purposes that the amount of the company profits referred to in this section shall be reduced by 5 per cent for management expenses relating to these holdings.

Subsequently, Law 11/2021 of 9 July on measures to prevent and combat tax fraud, with effect for tax periods beginning on or after 1 January 2021, in order to transpose Council Directive (EU) 2016/1164 of 12 July 2016, introduced the following amendments to Article 100 of the LIS:

  1. Paragraph 1 is amended to establish that the imputation of income arising from the application of the international tax transparency regime affects not only income obtained by entities in which the taxpayer has an interest, but also income obtained by its permanent establishments abroad.It is also specified, in paragraph 7, that in the case of permanent establishments, the imputation will be made in the tax period in which the income is obtained.Likewise, section 12 is amended to add the documentation that must be submitted together with the corporate income tax return for income obtained by these permanent establishments.

  2. Section 2 is also amended to to eliminate the rule relating to dividends, holdings or income deriving from the transfer of holdings contained in the previous article 100.4 of the LIS.

  3. Paragraph 3 is also amended to to introduce various types of income that may be imputed under this international tax transparency regime, such as income derived from financial leasing transactions or from insurance, banking and other financial activities.In addition, 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 that means that they are not included is modified from 50 per cent to 2/3.

  4. in section 4 deletes the rule by virtue of which did not include the income provided for in letters b) and e) of the original wording of section 3 of article 100 of the LIS, when the securities are derived from the participation in the capital or equity of entities that grant at least 5% 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. It is specified in paragraph 5 that the income of letter i) of paragraph 3 of article 100 of the LIS will be taken into consideration for the purpose of determining whether the sum of the amounts of the income provided for in this regime is less than 15 per cent of the income obtained by the non-resident entity or permanent establishment.

  6. Paragraph 15 (formerly paragraph 16) is amended, by deleting the reference to proof that the incorporation and operation is based on valid economic grounds. It is also pointed out that the regulation foreseen in this article is not applicable when the non-resident entity or the permanent establishment is resident or located in another Member State of the European Union or is part of the European Economic Area Agreement.