International legal double taxation: Tax paid by taxpayer

Article 31 of the LIS regulates this deduction for international double taxation that is applied to positive income obtained and taxed abroad by entities resident in Spanish territory.

In the event that such income is taxed in the country where it was obtained and subsequently, when it is included in the taxpayer's tax base, is taxed by Corporate Tax in Spanish territory, double taxation occurs, which is attempted to be avoided by applying this deduction.

For these purposes, article 31 of the LIS establishes that when the taxpayer's tax base includes positive income (from 1 January 2017, only positive) obtained and taxed abroad, the lowest of the following two amounts will be deducted from the total tax:

The effective amount paid abroad due to a tax of an identical or analogous nature to this Tax.

Tax not paid because of exemptions, allowances or any other tax benefit will not be deducted.

If an agreement to avoid double taxation is in force, the deduction may not exceed the amount specified therein.
The total amount of tax that would be payable in Spain if the income had been obtained in this country.

Keep in mind:

When determining this amount, the reduction in income from certain intangible assets regulated in article 23 of the LIS must be taken into account, where applicable.

Consequently, all the tax paid abroad will be included in the tax base, even if part of it is not deductible from the total amount.

The portion of the amount of tax paid abroad that is not subject to deduction in the total amount by application of the provisions of the previous section will be considered as expense, provided that it corresponds to the performance of economic activities abroad.

In the event that the taxpayer has obtained several foreign incomes in the tax period , the deduction will be made by grouping those from the same country, except for income from permanent establishments, which will be computed separately for each of these.

The determination of income obtained abroad through a permanent establishment will be carried out in accordance with the provisions of article 22.5 of the LIS.

For a better understanding of the application of the deduction for international double taxation, see the following practical case.

Example:

The reporting entity, resident in Spain, which pays taxes at the general tax rate, has carried out operations in a foreign country "X" during 2023, without the mediation of a permanent establishment, from which it has obtained positive income for an amount equivalent to 12,000 euros. The tax equivalent to corporate tax paid abroad on said income amounted to the equivalent of 5,000 euros.

The declarant calculates the deduction for international double taxation as follows:

Positive income: 12,000

Further:

Tax paid abroad: 5,000

Calculation basis: 17,000

Equivalent share (25% of 17,000): 4.250

Applicable deduction: 4,250 (the lowest between 4,250 and 5,000)

Reflecting the above data in the scheme for determining the deduction for international double taxation:

Country/Establishment permanent	Positive income (R)	Tax foreign (E)	B = R + E Calculation base	C = B x type Equivalent share	Applicable deduction (the lesser of E and C)
Country "X"	12,000	5,000	17,000	4.250	4.250

Note: According to the provisions of article 31.2 of the LIS, that part of the amount of tax paid abroad that is not subject to deduction in the total amount by application of the provisions of section 1 of said article will be considered a deductible expense, provided that it corresponds to the performance of economic activities abroad. So in this example:

Deductible expense: 5,000 - 4,250 = 750