Spanish Corporate Tax Exemptions and Foreign Tax Credits (TRLIS)

Case of Exemption (Article 22 TRLIS)

The assumption is a Spanish company with a permanent establishment abroad that carries on business that is subject to a foreign tax similar in nature to Spanish corporate tax.

The consequence is the exemption of income from the activity obtained abroad by the Spanish company.

For example, “Ceramics La Plana”, based in Castellón, has a subsidiary called “Ceramics-Argentina” whose headquarters is in Buenos Aires. The income obtained and taxed in Argentina is exempt from Spanish corporate tax.

Case of Tax Credits (Section 32 TRLIS)

This applies when a Spanish company has interests in a foreign company that earns profits taxed abroad by a tax of a similar nature. This is taken into consideration even if the foreign company holds shares in other companies.

These amounts are treated as taxable dividends received, and the credit will be a deduction for tax paid by the owned company plus the tax paid by the chain of companies, particularly with respect to such dividends. The upper limit on the deduction will be the quota corresponding to the tax base.

For example, company B is owned by company A. Company B provides a dividend of €60 to company A and pays a tax amounting to €10; company A delivers a dividend of €200 to the taxpayer and pays a tax amounting to €30.

Taxpayer example:

• Taxable income: €200
• Full quota: 30% × 200 = €60
• Deduction amount: - (€30 + €10)

Tax Credits: Deductions and Activities

From the whole amount of the tax due, there are: 1) deductions for double taxation, and 2) tax credits for activities. There is a long list of concepts that can lead to a reduction in the quota.

R&D Tax Credits (Article 35.1 TRLIS)

The requirement is to carry out research and development in science and technology. For determination of the credit, the basis is the cost of R&D and investment in tangible and intangible assets. The initial percentage (30%) has been reduced.

Innovation Tax Credits (Article 35.2 TRLIS)

The requirement is to carry out technological innovation. For determination of the credit, the basis is expenditure and investment in technological innovation. The deduction percentage began at 15% and has been declining.