Corporate tax, deductions

Every time a new Government begins, taxes change and, at the beginning of this year,various tax modifications have come into forcethat have mainly affected the Tax on Added Value (VAT), Wealth Tax and Corporate Tax (IS).

It is estimated that the largest increase in taxes will occur due to the modifications to the Corporate Tax, which will allow the Government to collect, according to its data, 4,655 million euros. This occurs due to changes in the tax deduction in Corporate Tax.

Tax deduction in corporate tax

A tax deduction represents a reduction in the amount payable for Tax due to various circumstances, such as the expenses generated to produce income. Tax deductions are usually limited or subject to compliance with specific requirements.

In the case of Corporate Tax, a series of deductions must be taken into account when preparing the Tax. The main deductions are the following:

Deduction of financial expenses

Based on Article 16 of the Corporate Tax Law, net financial expenses will be deductible with a limit of 30% of the operating profit for the year. The established limitation will not apply to credit institutions. Insurance companies and the entity in question are extinguished in the tax period unless restructuring is required.

Deduction for international double taxation

If income obtained and taxed abroad is included in the taxpayer’s tax base, the lesser of the following amounts will be deducted from the full amount:

• The effective amount of what was paid abroad due to a tax of a nature-identical or analogous to this Tax.
• The amount of the full fee that would be payable in Spain for the income above if it had been obtained in Spanish territory.

Deduction for research and development and technological innovation activities

This deduction is intended to encourage companies to increase investments in this type of expense. The deduction percentage in the case of research and development activities is 25% of the expense incurred in the tax period for this concept, and 8% of investments in tangible and intangible assets, excluding buildings and land, as long as they are used for research and development activity.

In the case of technological innovation, the deduction percentage is 12% of the expenses incurred in the tax period for said concept.

Deduction for investments in film productions, audiovisual series and live performing arts and musical shows

Based on Article 36 of the Corporate Tax Law, investments in Spanish productions of feature films and audiovisual series of fiction, animation or documentaries will entitle the producer to a deduction:

• 20% of the first million.
• 18% on the excess of said amount.

Deduction for job creation and disabled workers

To promote job creation, the Corporate Tax Law allows entities that hire their first worker through an indefinite employment contract to support entrepreneurs, so that the amount can be deducted from the full quota. Of 3,000 euros.

In the case of workers with disabilities, 9,000 euros will be deductible from the full quota for each person/year increase in the average workforce of workers with disabilities equal to or greater than 33% hired by the taxpayer.

Modifications in deductions in Corporate Tax

On December 3, Royal Decree-Law 3/2016 of December 2 was published in the Official State Gazette (BOE), which modifies various taxes, including Corporate Tax, and about the < strong>deductionsthe following is established:

• Limitations on the compensation of negative tax bases in previous years for large companies. The following percentages are established:
  • Companies with a net turnover greater than 60 million euros: 25%.
  • Companies with a net turnover between 20 and 60 million euros: 50%.
• Limits of deductions for double taxation generated or pending compensation: 50% of the full amount.
• Reversal of the losses due to impairment of the value of shares deductible in tax periods before 2013. It must be made for a minimum annual amount and on a straight-line basis for five years.