Hybrid asymmetries
Explanation about the new regulation on hybrid asymmetries.
Royal Decree-Law 4/2021, of March 9 , introduces with effect for tax periods starting from of January 1, 2020 a new article 15 bis in the LIS , with the aim of transposing the Directive ( EU ) 2016/1164 of the Council, of July 12, 2016 regarding hybrid asymmetries that take place between Spain and other Member States and between Spain and third countries or territories.
Royal Decree-Law 4/2021, transposes a "primary rule" , understood as the solution that is considered appropriate to nullify the fiscal effects of hybrid asymmetry, and a "secondary rule" which will be applicable when the first has not been applied, either because there is a discrepancy in the transposition and application of the Directive even though all Member States have acted in accordance with it or because a third country or territory that does not have precepts to neutralize the effects of such asymmetries participates in the hybrid asymmetry.
This adjustment can only be made when the taxpayer has a tax period of duration equal to 12 months but that does not coincide with the calendar year , or when the tax period is of less than 12 months. In both cases, it is necessary that to carry out the adjustment the end date of the tax period is March 11, 2021 or later, that is, the tax period must end after the entry into force of Royal Decree-Law 4/2021, of March 9.
The new article 15 bis indicates in its section 1 that the expenses corresponding to operations carried out with related persons or entities residing in another country or territory that, as a consequence of a different tax classification of the expense or operation, do not generate income, generate exempt income or are subject to a reduction in the tax rate or any tax deduction or refund other than a deduction to avoid legal double taxation.
In the event that the income is generated in a tax period that begins within twelve months following the conclusion of the tax period in which the expense was accrued to the taxpayer, said expense will be tax deductible in the tax period in which the aforementioned income is integrated into the beneficiary's tax base.
In section 2 of article 15 bis of the LIS , it is established that Expenses corresponding to operations carried out with related persons or entities residing in another country or territory that, as a consequence of a different tax classification of the taxpayer in said country or territory, do not generate income, will not be tax deductible part that is not offset by income that generates double inclusion income.
The amount of the expenses not deducted by application of the provisions of the previous paragraph may be deducted in the tax periods that conclude within three years following the conclusion of the period tax in which such expenses were accrued, to the extent that is offset by the taxpayer's income that generates double inclusion income.
amount corresponding to operations carried out with related persons or entities residing in another country or territory that, as a consequence of a different tax classification of these, will be included in the tax base ##1## , has been considered a tax-deductible expense in that other country or territory , in the part that is not offset by income that generates double income inclusion.
The amount integrated into the tax base by application of the provisions of the previous paragraph may be reduced from the tax base of the tax periods that conclude within the three years following the conclusion of the tax period in which the income was integrated, to the extent that such expense is offset in the other country or territory with income of the related person or entity that generates double inclusion income.
article 15 bis of the LIS in its section 3 states that does not The expenses corresponding to operations carried out with related persons or entities residing in another country or territory that, as a consequence of a different tax classification from these in said country or territory and in that of their participant or investor, will be tax deductible do not generate income.
The provisions of the preceding paragraph shall also apply where a connection relationship exists exclusively between the taxpayer and the aforementioned participant or investor.
section 4 of article 15 bis of the LIS establishes that will not be fiscally deductible expenses corresponding to operations carried out with or by related persons or entities residing in another country or territory that, as a result of their different tax classification, are also tax deductible expenses in said persons or related entities , in the part that is not offset by income that generates double inclusion income.
The amounts not deducted in accordance with the provisions of the previous paragraph may be deducted in the tax periods that end in the three years following the conclusion of the tax period in which such expenses were accrued , to the extent that are offset by income of the related person or entity that generates double inclusion income.
Expenses corresponding to operations carried out by the taxpayer will not be tax deductible when they are also considered tax deductible in the country or territory of a related person or entity as a result of a different qualification tax of the taxpayer, in the part that is not offset by income that generates double inclusion income.
The amounts not deducted in accordance with the provisions of the previous paragraph may be deducted in the tax periods that end in the three years following the conclusion of the tax period in which such expenses were accrued, to the extent that they are offset by the taxpayer's income that generates double inclusion income.
Specifically section 5 of article 15 bis of the LIS points out the following expenses that will not be tax deductible:
Expenses corresponding to transactions carried out with a permanent establishment of the taxpayer or of a related entity, or with a related entity that has permanent establishments, where as a result of a tax difference in their attribution between the permanent establishment and its head office, or between two or more permanent establishments, they do not generate income.
Expenditure corresponding to transactions carried out with a permanent establishment of the taxpayer or of a related person or entity which, because the establishment is not recognised for tax purposes by the country or territory, does not generate income.
Estimated expenditure of internal transactions carried out with a permanent establishment of the taxpayer, where such expenditure is recognised in an applicable international double taxation agreement, and where, under the law of the country or territory of the permanent establishment, it does not generate income, in the part that it is not offset by income of the permanent establishment which generates double-inclusion income.
The amount of expenses not deducted by application of the preceding paragraph may be deducted in the tax periods ending within the following three years, to the extent that they are included in the taxable income of the taxpayer with income of the permanent establishment which generates double-inclusion income.
Expenses corresponding to transactions carried out with or by a permanent establishment of the taxpayer which are also tax deductible in that permanent establishment or in an entity related to it, in the part that is not offset by income from said permanent establishment or related entity which generates double-inclusion income.
The amounts not deducted in accordance with the provisions of the preceding paragraph may be deducted in the tax periods ending in the three years following the end of the tax period in which such expenses were accrued, to the extent that they are offset against income of the related permanent establishment or entity generating double-inclusion income.
section 6 of article 15 bis of the LIS establishes that will not result from application of the provisions of article 22 of the LIS in the case of income obtained through a permanent establishment that is not fiscally recognized by the country or territory of location.
In accordance with section 7 of article 15 bis of LIS , no expenses corresponding to a transaction or series of transactions carried out with related persons or entities residing in another country or territory will be tax deductible when they finance, directly or indirectly, deductible expenses carried out within the framework of operations that generate the effects derived from the hybrid asymmetries referred to in the previous sections of this article, except when one of the affected countries or territories has made an adjustment to avoid the deduction of the expense or subject the income to taxation, in the terms set forth in said sections.
In section 8 of article 15 bis of the LIS , it is provided that will be deductible in the full amount of this Tax the amount of the withholding carried out on its account in the proportion that corresponds to the income integrated into the tax base obtained in a hybrid transfer made with a related person or entity not resident in Spanish territory.
For these purposes, a hybrid transfer is considered to be any operation relating to the transfer of a financial instrument when the underlying performance of the transferred financial instrument is considered, for tax purposes, to have been obtained simultaneously by more than one of the parties involved in the operation.
section 9 of article 15 bis of the LIS specifies that the provisions of the previous sections of this Article 15 bis will also apply when the operations to which they refer, regardless of whether they are carried out between related persons or entities or not, take place within the framework of a structured mechanism.
For these purposes, a structured mechanism is considered to be any agreement, legal transaction, scheme or operation in which the tax advantage derived from the hybrid asymmetries referred to in said sections in the terms indicated therein , is quantified or considered in its conditions or considerations or that has been designed to produce the results of such asymmetries, except that the taxpayer or a person or entity linked to him could not have reasonably known them and did not share the indicated tax advantage.
section 10 of article 15 bis of the LIS establishes that will not be fiscally deductible expenses or losses that are tax deductible in another country or territory in which the taxpayer is also a tax resident, in the part that is offset by income that does not generate double inclusion income.
Where such expense is offset in the other country or territory in a tax period subsequent to the deduction of the expense or loss on the taxpayer, the taxpayer must include the amount corresponding to the aforementioned amount in the tax period in which this occurs.
The provisions of the previous paragraph shall not apply when the other country is a Member State of the European Union with which Spain has signed an agreement to avoid international double taxation by virtue of which the taxpayer is considered a tax resident in Spanish territory.
section 11 of article 15 bis of the LIS introduces the following explanation, indicating that for the purposes of As provided in this article 15 bis, an income is considered to generate double inclusion income when it is subject to taxation in accordance with this law and the legislation of the other country or territory.
section 13 of article 15 bis of the LIS explains that, for the purposes of the application of the provided in this article 15 bis, the reference to related persons or entities will include:
- The persons or entities linked in accordance with the provisions of article 18 of the LIS.
- An entity which holds, directly or indirectly, an interest of at least 25 per cent in the voting rights of the taxpayer or is entitled to receive at least 25 per cent of the profits of the taxpayer, or in which the taxpayer holds such an interest or rights.
- The person or entity in respect of which the taxpayer acts jointly with another person or entity regarding the voting rights or ownership of the capital of the latter, or the person or entity acting jointly with another person or entity regarding voting rights or ownership of the capital of the taxpayer.
The provisions of the previous paragraph shall not apply when the other country is a Member State of the European Union with which Spain has signed an agreement to avoid international double taxation by virtue of which the taxpayer is considered a tax resident in Spanish territory.
An entity over whose management the taxpayer has a significant influence or an entity that has a significant influence over the management of the taxpayer. For these purposes, it is considered that there is significant influence when an entity has the power to intervene in the financial and operating policy decisions of another entity, but does not control or exercise joint control over that entity.
article 15 bis in its section 14 states that, the provisions of the previous sections will not apply ##3##when the hybrid asymmetry is due to the beneficiary being exempt from the Tax, occurs within the framework of an operation or transaction that is based on a financial instrument or contract subject to a special tax regime, or when the difference in the imputed value is due to differences in valuation, including those derived from the application of the regulations on related-party transactions.
The second Final Provision, of Royal Decree Law 18/2022, adds a new section 12 in article 15 bis of the LIS with which the mandate of article 9 is transposed into the Spanish legal system. bis of Directive ( EU ) 2016/1164, in the wording given by Directive ( EU ) 2017/952 as regards hybrid asymmetries with third countries, in the case of inverted hybrid asymmetries, forcing Member States to treat fiscally transparent entities as residents that are considered by the legislation of the countries of residence of their majority shareholders as entities subject to taxation on income to avoid a situation of hybrid asymmetry in which certain income is not taxed in any country or territory, that is, it is not taxed either at the headquarters of the entities under the income attribution regime or at the headquarters of its participants or the entity paying said income.
Thus, an entity under an income attribution regime in which one or more entities, linked to each other, participate directly or indirectly on any day of the year, in the capital, in the own funds, in the results or in the voting rights in a percentage equal to or greater than 50 percent and are residents in countries or territories that qualify the entity under the attribution regime as a taxpayer for a personal income tax, will be taxed by Corporate Tax, as a taxpayer, for certain income positive results that correspond to all participants residing in countries or territories that consider the entity in attribution of income as a taxpayer for personal income tax.