The figure which we will analyze in this article show, without doubt, one of the major incentives that the Spanish tax legislation has established as a means of attracting foreign capital.
This figure is regulated by Articles 116 to 119 of the Royal Legislative Decree 4/2004, of the 5th March, in which the Corporate Income Tax Act consolidated text was approved.
Through this framework a number of far-reaching tax benefits have been realized; in the taxation of dividends, the transfer of shares and the repatriation of profits from abroad when these incomes originate from foreign companies participating in the ETVE.
Firstly, the possibility to apply an exemption on income derived from dividends or the transfer of shares in foreign companies in the Spanish corporation tax of ETVE has been established. Moreover, certain income distributed to shareholders not resident in Spain is not considered to be obtained in Spanish territory:
– Profits distributed by the ETVE which is charged to the exempted income (art. 118.1)
– Certain gains made on the transfer of shares in the ETVE or in the cases of separation from partners or the liquidation of the company (art. 118.2)
The general requirements, set by law for the implementation of the tax scheme, are subject to some very specific incompatibilities and are listed in art. 116.1, 3 and 4 of the Tax Act1[i].
The requirements are as follows:
1. That the corporate purpose of the organization understands the activity of the management and administration of the securities representing their own funds of entities not resident in Spanish territory (art. 116.1.1)
2. That the corresponding organization of material and human resources is made available for this purpose (art. 116.1.1)
3. The securities or shares representing the share capital of the entity holding foreign securities must be nominative (art. 116.1.2)
4. That the application of this special regime is explicitly opted for (art. 116.2)
The law, in this sense, establishes the need for the effective enforcement of these conditions, which must be proven by the taxpayer at the request of the tax authorities in art. 119.
Additionally, a number of specific requirements are required for the application of the exemption in the dividends received by the ETVE originating from the participation of non-resident entities.
Specifically:
– That they possess a holding of at least 5% of the foreign entity (art. 21.1.a). This said percentage is not necessary if the value of acquisition of the holding is more than 6 million euros (art. 117)
– That this participation is maintained, in an uninterrupted fashion, during the preceding or subsequent year, to meet this deadline (art. 21.1.a)
– The participating company must be taxed by a tax of a similar nature to the Spanish IS (art. 21.1.b)
– The profits must be derived from business activities abroad (art. 21.1.c)
The same requirements, with certain specialties regulated in the cited art. 21, will be required for the exemption of income arising from the transfer of these securities in foreign entities.
[i]1 AIES, UTES or certain “equity” companies
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A Àmbit Assessor, SL comptem amb 40 anys dedicats a l’assessoria fiscal, comptable i laboral de la Pime.
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