Calculation of withholdings in joint account contracts: offsetting negative results

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the mechanics of withholdings in joint account contracts (cuentas en participación), an area that generates doubts in determining the taxable base for Corporate Income Tax (Impuesto sobre Sociedades).

What the DGT has ruled

The query concerned whether the withholding tax should be applied to the positive result of each month in isolation or whether it was possible to reduce said base with the negative results from previous months. The DGT has ruled that the managing entity must apply the withholding to the income paid to the participating entity by applying the following logic:

• The withholding base shall be the positive yield of the current month.
• Said base must be reduced by the negative results from previous months.
• The obligation to withhold arises at the moment the income becomes due, as stipulated in the contract.

This criterion is based on the application of the Corporate Income Tax Law (Ley del Impuesto sobre Sociedades, LIS) and the Corporate Income Tax Regulations (Reglamento del Impuesto sobre Sociedades, RIS).

What it means for you

This ruling has a direct impact on managing entities and participating entities operating under this contractual model. For managers, it precisely defines the calculation of the withholding they must apply when paying income. For participants, it ensures that withholding is not applied to a gross yield that does not reflect the economic reality of the contract, allowing previous losses to reduce the base upon which the withholding rate is applied.

What should be done

It is necessary to verify that the settlement models and withholding calculation systems of managing entities comply with this criterion for offsetting negative results. Since the due date of the income depends on what is agreed in each contract, it is fundamental to review the settlement clauses to ensure that the timing of the withholding is correct. It is recommended to assess the particular situation of each joint account contract to guarantee regulatory compliance.