# Practical examples

## Example 1:

How to apply net financial expenses from previous years

Entity "A" presents the following data in the tax period:

• Operating Profit (BO): €100 million
• Financial expenses (GF):
• Year 0: €80 million
• Year 1: €20 million
• Year 2: €40 million

As established in article 16.1 of the LIS , the entity can deduct net financial expenses with a limit of 30 percent of the operating profit for the year; The net financial expenses of the tax period amounting to 1 million euros being deductible in any case.

#### Maximum limit:

• • 30% Operating profit = 30% x 100 = €30 million
• • €1 million

Year 0:

• BO limit = €30 million (30% of 100)
• Deductible GF = €30 million
• GF pending deduction = €50 million

Year 1:

• BO limit = €30 million (30% of 100)
• Deductible GF = €20 million from the tax period + €10 million from the previous tax period (Year 0)
• GF pending deduction = €40 million from the previous tax period (Year 0)

Year 2:

• BO limit = €30 million (30% of 100)
• Deductible GF = €30 million of the tax period
• GF pending deduction = €40 million from Year 0 and €10 million from this tax period (Year 2).
€ millionFinancial expenses
net
LimitFinancial expenses
net deductible
Limit exercises
following
Pending financial expenses
Year 0 80 30 30 --- 50
Year 1 20 30 20 + 10 --- 40
Year 2 40 30 30 --- 40 + 10

## Example 2:

How to add unused operating profit to future years

Entity "B" presents the following data in the tax period:

• Operating Profit (BO): €100 million
• Financial expenses (GF):
• Year 0: €20 million
• Year 1: €10 million
• Year 2: €60 million

#### Maximum limit:

• • 30% Operating profit = 30% x 100 = €30 million
• • €1 million

Year 0:

• BO limit = €30 million (30% of 100)
• Deductible GF = €20 million of the tax period
• Limit of BO not consumed in year 0 = €10 million

Year 1:

• BO limit = €30 million (30% of 100)
• Deductible GF = €10 million of the tax period
• Limit of BO not consumed in year 1 = €20 million
• BO limit not consumed in previous periods (Year 0) = €10 million

Year 2:

• BO limit = €30 million (30% of 100)
• Deductible GF = €60 million (€30 million due to application of the tax period limit + €30 million coming from the excess BO of previous periods)
• GF pending deduction = 0
€ millionFinancial expenses
net
LimitFinancial expenses
net deductible
Limit exercises
following
Pending financial expenses
Year 0 20 30 20 10 ---
Year 1 10 30 10 20 + 10 ---
Year 2 60 30 + 30 60 --- ---

## Example 3:

How to apply the limit of 1 million euros

Entity "C" presents the following data in the tax period:

• Annual Operating Profit (BO) for each tax period: €2 million
• Financial expenses (GF):
• Year 0: €0.8 million
• Year 1: €1.1 million
• Year 2: €0.8 million

#### Maximum limit:

• • 30% Operating profit = 30% x 2 = €0.6 million
• • €1 million

Year 0:

• Deductible GF = €0.8 million for being less than €1 million

Year 1:

• Deductible GF = €1 million
• GF pending deduction = €0.1 million

Year 2:

• Deductible GF = €0.8 million from the tax period + €0.1 million coming from the previous tax period (Year 1)
• GF pending deduction = 0
€ millionFinancial expenses
net
LimitFinancial expenses
net deductible
Limit exercises
following
Pending financial expenses
Year 0 0.8 1 0.8 --- ---
Year 1 1.1 1 1 --- 0.1
Year 2 0.8 1 0.8 + 0.1 --- ---