The income attribution regime is Spain's pass-through taxation system, set out in Arts. 86–90 of the LIRPF and Art. 6 of the LIS. Entities subject to this regime are not taxable for Corporate Tax purposes; instead, their income flows directly to each partner or member in the year it is earned by the entity, regardless of whether any actual distribution has taken place.
In practice
What Is the Income Attribution Regime?
The income attribution regime (régimen de atribución de rentas) is the Spanish equivalent of the Anglo-Saxon concepts of fiscal transparency or pass-through taxation. Entities subject to this regime are not taxpayers for Corporate Tax purposes: their income “flows through” directly to their partners or members, who include it in their own tax return — personal income tax (IRPF) if they are individuals, or Corporate Tax (IS) if they are legal entities — in the year the entity earns it.
The statutory basis is Arts. 86–90 of Law 35/2006 (LIRPF) and Art. 6 of Law 27/2014 (LIS). Under Spanish law, entities taxed under this regime include, among others, civil partnerships (sociedades civiles) without a commercial purpose, communities of property (comunidades de bienes), unadministered estates (herencias yacentes), and certain foreign entities whose legal nature is analogous to these Spanish forms.
How It Applies to Foreign Entities: DGT Resolution BOE-A-2020-2108
The extension of the regime to foreign entities is governed primarily by Art. 87.1 LIRPF and was clarified by the DGT Resolution of February 6, 2020 (BOE-A-2020-2108). That resolution established three cumulative criteria for determining whether a foreign entity is analogous to Spanish pass-through entities:
- The entity is not subject to a personal income tax in its state of incorporation.
- The income it generates is fiscally attributed to its members under the law of that state.
- That attribution occurs by the mere act of earning the income, regardless of any actual distribution.
If all three criteria are met, the Spanish partner includes their pro-rata share of income in their IRPF or IS return for the year in which the entity earns it — even if no cash has been distributed. This can create a Spanish tax liability on income the partner has not yet received.
The Character-Preservation Principle (Art. 88 LIRPF)
One of the most important — and least understood outside international tax practice — rules is set out in Art. 88 LIRPF: attributed income retains the character of the activity or source from which it derives. Income is not homogenized into “dividends.”
This means:
- If the entity earns income from a business activity (sales, services), the partner reports it as business income (rendimientos de actividades económicas).
- If it receives dividends from a subsidiary, the partner reports them as capital income (rendimientos del capital mobiliario).
- If it generates gains from the sale of assets, the partner reports them as capital gains (ganancias patrimoniales).
This principle is fundamental for correctly applying deductions, tax credits, and applicable rates, and it differs markedly from the Controlled Foreign Corporation (CFC) / TFI regime, where all attributed income is treated as capital income.
Key Difference vs. the Spanish CFC Regime (TFI)
The income attribution regime and the TFI regime (Art. 91 LIRPF) are often confused because both involve attributing income to a partner without an actual distribution. The differences are substantial:
| Income Attribution Regime | TFI (CFC) Regime | |
|---|---|---|
| Primary rule | Arts. 86–90 LIRPF | Art. 91 LIRPF |
| Control threshold | None required | ≥ 50% of capital/voting rights |
| Income attributed | All income (preserving character) | Passive income only (or all if no substance) |
| Low-tax requirement | Not applicable | Effective rate < 75% of Spanish IS rate |
| EU/EEA carve-out | Same treatment | Excluded if genuine economic activity exists |
When the entity is a US partnership or an LLC that meets the three criteria of BOE-A-2020-2108, the applicable regime is the income attribution regime (Arts. 86–90 LIRPF), not the TFI. Selecting the correct regime has direct implications for the character of the income, available deductions, and the scope of the relevant reporting obligations.
At BMC, whenever we analyze the tax position of a client with US entities, one of the first things we establish is whether we are dealing with an income attribution case or a TFI case — because the analysis path, the reporting obligation, and the available planning options are entirely different.