We talk about tax deductions and analyze their main characteristics and how we can access them. Identifying and defining the best tax strategy is key in times of crisis.
Tools for your company’s tax planning
The Corporate Tax Law establishes the essential rules to regulate taxation in the field of economic activity carried out by legal persons, companies. This regulation, in addition to stipulating how much and how companies must pay in tax, based on their accounting result for the last year, proposes a series of mechanisms that allow the different taxpayers to reduce the tax burden they owe. bear through tax breaks.
But what tools should companies consider? Reductions in the tax base (transfer of intangibles, charitable-social works…), compensations (negative tax bases from previous years), bonuses (income from Ceuta and Melilla and public services), and pre tax deductions (for international double taxation, to encourage certain activities…), are the most common and must be taken into account by any company and financier when it comes to tax planning for their companies.
What are tax deductions?
In the case of the last tool identified above, tax deductions allow a direct reduction on the full share of the tax that a certain company must pay. Among the tax deductions, those intended to encourage the following activities stand out:
- Research and development and technology innovation activities. It allows companies to recover part of the expense/investment made in their projects to improve and obtain new products.
- Investments in film productions, audiovisual series, and live shows of performing arts and music. They give the right to a tax incentive to producers and taxpayers who finance national audiovisual products (feature films, short films, documentaries, animation…), as well as producers who carry out the production of foreign audiovisual works and live shows.
- Employment creation. Allows reduction of the full amount of the tax for entities for hiring new staff in companies with up to 50 employees.
- Job creation for workers with disabilities. It gives companies access to a reduction in corporate tax for incorporating disabled personnel into the workforce.
- Investments made by the port authorities. Priority investments in the improvement and expansion of port facilities.
Of all these tools, the most attractive is the one that encourages the improvement of business activity by obtaining new products or improving production processes through investment in R&D activities.
Main characteristics of R+D+i tax deductions
We can group the main characteristics of tax deductions according to different variables:
1- Nature of the projects
Any project is eligible regardless of its nature, technical branch, or technology used as long as it can be classified as research and development activities or technological innovation. What does each of them consist of?
- Research and Development: in this case we are talking about a deduction of between 25 and 42% of the expense associated with each project that generates new knowledge after an original and planned investigation that can materialize new products. In addition, it allows an extra deduction of 17% to be added to the expenses of the personnel dedicated exclusively to R&D projects, as well as an extra deduction of 8% of the investments made in fixed assets and that are also used exclusively for this type of project.
- Technological Innovation: in this case, the deduction is 12% of the expense associated with each project that pursues technological advances in products and processes or the creation of new processes or the improvement of existing ones. This tax classification is extended by collecting expenses related to projects related to animation and video games and sample series in the textile, footwear, leather goods, toy, furniture, and wood sectors. [FD1]
2- Expenditure of the projects
A noteworthy aspect of this incentive, associated with the expenses of Research and Development or Technological Innovation projects, is that there is no annual maximum about its generation. For this reason, companies can generate, proportionally to the percentages of the previous application, as much deduction as an expense they have made in this type of project. Within these individualized expenses by projects, the direct costs of each project related to the personnel involved in the project, the equipment used in the activities, the materials consumed, and external collaborations, subcontracting, from universities and private companies from countries of the European economic area.
The Corporate Tax Law does present some limits regarding the application of this type of deductions in its article 39, allowing companies to generally reduce 25% of the resulting total amount of up to 50% if the deduction generated in that fiscal year exceeds 10% of the full quota. However, the deduction generated in a fiscal year and not applied due to lack of quota or reasons of fiscal strategy can be applied in the 18 years following its generation.
* Tax deductions in the Canary Islands, the Basque Country, and Navarra
This support for the continuous improvement of companies and the development of new products can also be found in the special tax regime of the Canary Islands and the regional regulations of the Basque Country and Navarra, where they become even more advantageous with higher intensities or extended limits.
In the case of the special regime of the Canary Islands, the deduction for Research and Development activities is between 45% and 75.6%, with an extra 37% for the expenses of personnel dedicated to R&D projects. D as well as 28% of the investments made in elements of fixed assets dedicated exclusively to this type of project. For their part, technological innovation projects have a percentage of 45%.
In the case of regional regulations, they set their percentages. For companies with fiscal domicile in Navarra, they can benefit from a deduction of 40% of their expenses for Research and Development projects, with an additional 10% for expenses derived from personnel dedicated exclusively to these projects and collaborations with Organisms. Research Publics of the European Economic Area, and 15% for technological innovation projects.
Another feature of the regional regulations is the possibility of obtaining tax deductions for those companies with a permanent establishment in Navarra that finance the development of R&D projects and other taxpayers. In this way, not only the development of their projects are encouraged, but also the mobilization of private funds, article 62.
For the Basque Country, these percentages are between 30% and 50% in Research and Development projects, with an additional deduction of 20% for the expenses of personnel dedicated exclusively to projects with this classification and collaborations with Public Organizations. of Research of Spain and 10% for investments in fixed assets dedicated also exclusively, and between 15% and 20% in the case of technological innovation projects.
In these jurisdictions, the application of the tax deduction does not present a limit, being able to reduce the full amount completely and the remaining deduction can be applied in the 15 fiscal years after its generation. As in the case of the Foral regulations of Navarra, in the Foral regulations of the Basque Country, there is the possibility of obtaining tax deductions for those companies with a permanent establishment in the Basque Country that finances the development of R&D projects and other taxpayers. In this case, the requirements and application characteristics are found in article 64.
3- Beneficiary companies
Another fundamental characteristic of the tax deductions for Research and Development or Technological Innovation projects is their general nature, and any type of company can take advantage of them regardless of their size, type of activity, and any project regardless of the technologies it involves, provided that it aligns with the definitions established by law for such a case.
4- Legal certainty of the incentive
One of the main aspects when applying an incentive that reduces the tax burden of a company is its legal certainty. In this sense, the tax deductions for R&D&i projects present different schemes that allow companies to have tools that justify the operations carried out, before verification processes or tax inspections, such as an economic technical dossier, a Motivated Binding Report, and/or Prior Valuation Agreements supported all of them with Binding Consultations of the Tax Agency.
Steps to apply tax deductions
To successfully carry out the application of tax deductions, the following steps must be fulfilled:
- There must be a project on one of the activities mentioned above: research and development activities or technological innovation.
- A detailed technical-economic analysis of the activities carried out by the companies throughout their fiscal year will be carried out.
- The susceptible incentive will be identified in each case and all the tools that it makes available to each company will be analyzed.