These measures aim to avoid both so-called legal and financial double taxation. Legal double taxation occurs when the income of a single taxpayer is taxed in two different countries. Financial double taxation occurs when the same income is taxed by two different taxpayers in two different countries(international double taxation) or in the same country (national double taxation).
There are two ways to avoid double taxation: the tax exemption procedure and the attribution procedure.
Tax exemption procedure
Dividends and capital gains in resident and non-resident companies.
The tax credit on dividends is established to avoid the financial double taxation that occurs when the income of a company included in the tax base is subsequently distributed as a dividend and the corresponding corporation tax is paid in the first company (paying company) that distributes the dividend and in the receiving company by the insertion as income or revenue in its own tax base.
If the transfer of an equity interest in another company generates positive income that is taxable, the transferring company can also benefit from the corresponding exemption in order to avoid financial double taxation, since the increase in value includes the undistributed profits that arose while the interest was held, which in turn were already taxed in the company holding the interest.
The tax exemption of dividends and capital gains can always be claimed if the legal requirements are met.
Income generated through permanent establishments located abroad.
The positive income obtained through permanent establishments abroad is not subject to taxation in Spain, nor is the positive income resulting from its transfer, always provided that the conditions and circumstances provided for in the Corporation Tax Law are met.
It is important to note that the integration of negative income obtained abroad into the tax base by a permanent establishment is prohibited unless it is transferred or the company ceases to operate.
Allocation procedure
Deduction of tax paid abroad
The corporate tax rules allow the deduction of the lower of the following two amounts:
- The tax of a similar nature already paid abroad.
- The tax that would be due in Spain if the income had been obtained in that country.
Dividend from non-resident companies.
In certain cases, the resident company receiving dividends may deduct the tax actually paid by the non-resident company on these dividends. Taxes paid by companies in which the subsidiary has a shareholding, as well as taxes paid by companies in which the subsidiary has a direct shareholding, etc., are also considered as tax actually paid, to the extent of the attributable share of the profit in respect of which the dividends are distributed. In practice, this deduction is always applicable when it is not possible to make use of the tax exemption.
This deduction, together with that described in the previous paragraph, has a common limit: the sum of the two may not exceed the tax that would have been payable if this income had been obtained in Spain.
If you have any doubts about double taxation, don’t hesitate to consult us. GM Tax Consultancy will study your case in detail and will advise you with total professionalism and proximity.
