Withholding and payments on account on non-exempt dividends: Article 21.10 LIS

In the recent binding ruling (consulta vinculante) V-1154 – 2021, of April 29, 2021, the Directorate General for Taxation (DGT) resolves the following question: given that, under Article 21.10 of the Corporate Income Tax Law (LIS), the amount of dividends or profit shares from entities is reduced by 5%, for the purposes of applying the exemption provided for in that article, as management expenses relating to those holdings, must the payer withhold tax on the 5% of the dividends that is not exempt and is therefore taxable?

With regard to the obligation to withhold, the DGT concludes that, under letter (d) of Article 128.4 of the LIS, there is no withholding obligation in respect of the dividends or profit shares referred to in paragraph 1 of Article 21 of the LIS. Therefore, provided that the requirements set out in that provision are met, the dividends distributed to the entity will not be subject to withholding.

Legislation/Administrative doctrine: Article 21 of Law 27/2014, of November 27, 2014; Article 128 of Law 27/2014, of November 27, 2014; DGT Binding Ruling V 1154 – 2021, of April 29, 2021