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Practical Manual for Companies 2021.

Taxation of branches in the Canary Islands Special Zone of entities taxed under the consolidated tax system

With effect for tax periods beginning on or after 1 January 2018, Law 8/2018, of 5 November, which modifies Law 19/1994, of 6 July, amending the Economic and Tax Regime of the Canary Islands, adds a new Fourteenth Additional Provision bis that regulates the application of the tax consolidation regime to entities with branches in the Canary Islands Special Zone.

This Fourteenth Additional Provision bis of Law 19/1994, of July 6, amending the Economic and Tax Regime of the Canary Islands, establishes that the application of the special tax rate established in article 43 of this Law in the case of branches of the Canary Islands Special Zone of entities with tax residence in Spain will not prevent said entities from forming part of a tax group that applies the tax consolidation regime provided for in Chapter VI of Title VII of Law 27/2014, of November 27, on Corporate Tax.

Notwithstanding the foregoing, the part of the tax base of the entity that forms part of a tax group and that is attributable to the branch of the Canary Islands Special Zone will not be included in the individual tax base of the entity for the purposes of determining the tax base of the tax group, and will be subject to a separate declaration in the terms determined by regulation.

Due to this novelty introduced by this provision and in the absence of regulatory development, taxpayers who have branches in the Canary Islands Special Zone (ZEC) of entities with tax residence in Spain that are part of a tax group that applies the tax consolidation regime, must submit two models 200 , since the law provides that they must be declared separately:

  1. Form 200 to declare the part of the tax base to which the ZEC zone tax rate will be applied:

    Box [00079] “ZEC entities in tax consolidation” page 1 of Form 200 must be checked, without indicating that it is part of a tax group, that is, without checking boxes [00009] “Dominant entity of a tax group” or [00010] “Dependent entity of a tax group” included on said page 1.

    This declaration must be completed only with data relating to the Canary Islands Special Zone branch of entities with tax residence in Spain, both on the pages dedicated to the Balance Sheet, Profit and Loss Account and Statement of Changes in Net Assets, as well as the data relating to the liquidation.

  2. Form 200 for the part of the tax base that is not taxed at the special rate and that will apply the special consolidation regime:

    You must check the box [00009] "Dominant entity of a tax group" or the box [00010] "Dependent entity of a tax group" , as the case may be, included on page 1 of Form 200, without indicating that the special tax rate applies to the branch in the Canary Islands Special Zone, that is, without checking the box [00079] "ZEC entities in tax consolidation".

    This declaration must be completed only with data relating to the entity that is part of a tax group and that are not attributable to the branch of the Canary Islands Special Zone, that is, the data relating to the individual tax base of the entity must be included for the purposes of determining the tax base of the tax group, both on the pages dedicated to the Balance Sheet, Profit and Loss Account and Statement of changes in net worth, as well as the data relating to the liquidation of the part that will apply the tax consolidation regime.