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V3197-23 12 December 2023 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · reserva para inversiones en canarias

Dividends received from other entities are not considered undistributed profits for RIC provisioning

A company enquired whether dividends from a Cuban entity could be included in the undistributed profit used to fund the Canary Islands Investment Reserve (RIC). The DGT ruled that dividends from holdings in other entities are not considered undistributed profits and, therefore, cannot be used to fund the reserve.

The question raised

Question raised 1. Confirmation as to whether the income recorded for dividends received from the Cuban entity in financial year X0, amounting to 2,239,782.24 euros, forms part of the undistributed profit originating from establishments in the Canary Islands derived from economic activities referred to in Article 27, paragraph 2 of Law 19/1994, of July 6, amending the Economic and Tax Regime of the Canary Islands, upon which the RIC for financial year X1 would be allocated, or whether, conversely, these dividends reduce the RIC allocation base, as they constitute financial income not eligible to generate the allocation to the corresponding reserve for financial year X0, in accordance with the system of equations calculation previously set forth.

The DGT's ruling

Profits derived from holdings in the capital of other entities are not considered undistributed profits under the Regulation of Law 19/1994. Consequently, income from dividends received does not generate undistributed profits eligible for the allocation to the RIC. If dividends are distributed from profits of previous financial years, a proportionality criterion shall be applied to avoid an undue reduction in the RIC allocation.

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