Common note to the deductions of Articles 31 and 32 of the LIS
The deduction of article 32 of the LIS is compatible with the deduction of article 31 of said Law with respect to dividends or shares in profits, with the joint limit of deductibility of the full quota that would have to be paid in Spain for these incomes if they had been obtained in Spanish territory. In order to calculate the full amount, the dividends or profit shares will be reduced by 5 percent as management expenses related to said shares. This reduction will not be applied in the case of dividends or profit shares in which the circumstances established in article 21.11 of the LIS occur. The excess over said limit will not be considered a tax-deductible expense, without prejudice to the provisions of article 31.2 of the LIS.
In the event of insufficient full quota to apply the deductions of articles 31 and 32 of the LIS, these may be deducted in the following tax periods.
The Administration has right to verify deductions for double taxation applied or pending application. This right will expire after 10 years from the day following the end of the period established for filing the declaration or self-assessment corresponding to the tax period in which the right to its application was generated.
After this period, the taxpayer must prove the deductions that he intends to apply by showing the liquidation or self-assessment and the accounting, with proof of their deposit during the aforementioned period in the Commercial Registry.
Example:
The Public Limited Company "X", resident in Spanish territory, whose net taxable turnover in the immediately preceding tax period is less than 40 million euros, and which pays tax at the general tax rate, holds 100 percent of the capital of the non-resident Company "Z". This company complies with the requirements set forth in article 21.11 of the LIS in accordance with the provisions of article 32.4 of said regulation.
During 2023, in which it has not had any participation in any other non-resident entity, and it did not benefit from taxation under the special taxes of the fifteenth and seventeenth additional provisions of the RDLeg. 4/2004, company "X" has received net dividends for an amount equivalent to 7,200 euros, having paid tax in the country of origin at a rate of 10 percent. It is known that Company "Z" has paid taxes in its country at an effective rate of 20 percent.
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Amount paid abroad for the dividend.
x - 0.1x = 7,200; x = 8,000
Therefore, taxation abroad has been 800
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Tax actually paid abroad by Company "Z" in respect of the profits from which the dividends have been paid.
y - 0.2y = 8,000; y = 10,000
Therefore, the tax paid by Company "Z" has amounted to 2,000
Calculation of deductions:
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Legal ID: tax borne by the taxpayer (art. 31 LIS)
The lesser of:
- Effective amount paid abroad: 800
- Full amount to be paid in Spain: 2,000 (8,000 x 0.25)
To be included in boxes [00163] and [00165]: 800
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Economic DI: Dividends and profit sharing (art. 32 LIS): 2,000
To be included in boxes [00167] and [00169]: 2,000
Limit of the two deductions:
Full amount that would have to be paid in Spain if the income had been obtained in Spanish territory:
10,000 x 0.25 = 2,500
Income that must be included in the tax base of Corporation "X": 10,000
Total deductions under arts. 31 and 32 LIS: 2,500
To be entered in box [00573]: 2,500
Note: Since the total tax borne by the aforementioned income amounts to 2,800 euros, while the total amount to be deducted in the quota, pursuant to articles 31 and 32 of the LIS, is 2,500 euros, the difference between both amounts, as stated by the General Directorate of Taxes in a binding consultation, will not be considered a tax-deductible expense in accordance with the provisions of article 31.4 of the LIS.