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

According to article 16.1 of the LIS , the entity can deduct net financial expenses up to a limit of 30 percent of the operating profit for the year; In any case, the net financial expenses of the tax period amounting to 1 million euros are deductible.

Year 0:

• BO limit = €30 million (30% of 100)
• GF deductibles = €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)
• Pending deductions = €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
• Pending deductions = €40 million from Year 0 and €10 million from this tax period (Year 2).

Millions €	Financial expenses net	Limit	Financial expenses net deductible	Limit exercises next	Financial expenses pending
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 (OP): €100 million
• Financial expenses (GF):
  • Year 0: €20 million
  • Year 1: €10 million
  • Year 2: €60 million

Year 0:

• BO limit = €30 million (30% of 100)
• Deductible GF = €20 million of the tax period
• Limit of unconsumed BO in year 0 = €10 million

Year 1:

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

Year 2:

• BO limit = €30 million (30% of 100)
• Deductible GF = €60 million (€30 million from application of the tax period limit + €30 million from the excess BO from previous periods)
• GF pending deduction = 0

Millions €	Financial expenses net	Limit	Financial expenses net deductible	Limit exercises next	Financial expenses pending
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 1 million euro limit

Entity “C” presents the following data in the tax period:

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

Year 0:

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

Year 1:

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

Year 2:

• Deductible GF = €0.8 million from the tax period + €0.1 million from the previous tax period (Year 1)
• GF pending deduction = 0

Millions €	Financial expenses net	Limit	Financial expenses net deductible	Limit exercises next	Financial expenses pending
Year 0	0.8	1	0.8	---	---
Year 1	1.1	1	1	---	0.1
Year 2	0.8	1	0.8 + 0.1	---	---