Double taxation deduction: proportional calculations are not required

The application of the international double taxation deduction often raises doubts for taxpayers receiving income from abroad, especially regarding the calculation of the amount that can be deducted in their tax return in Spain.

What the DGT has ruled

The Dirección General de Tributos (DGT) has addressed a query regarding whether, to calculate the double taxation deduction derived from rental income from real estate abroad, it was necessary to apply a proportional calculation. The taxpayer questioned whether they should take the tax paid in the country of origin and multiply it by the quotient between the base subject to taxation in Spain and the total foreign base.

The DGT's criteria establish that the international double taxation deduction shall be the lesser of two amounts:

• The effective amount paid abroad for a tax of an identical or analogous nature to Personal Income Tax (IRPF) or Non-Resident Income Tax (IRNR).
• The result of applying the average effective tax rate to the portion of the taxable base taxed abroad.

In the case analyzed, the administration confirms that the effective amount of the tax paid abroad is the total amount paid, without it being mandatory to perform the proportional calculation proposed by the inquirer.

What this means for you

If you are a resident in Spain with properties abroad that generate income, this ruling simplifies the deduction calculation process. It is not necessary to perform proration operations between the foreign taxable base and the portion taxed in Spain to determine the tax paid. The effective amount actually paid to the foreign tax authorities for a tax of a similar nature to IRPF must be used.

What you should do

It is essential to have documentation that proves the effective amount of the tax paid in the country of origin. When filing the tax return, you must verify which of the two aforementioned amounts is the lesser to apply the deduction correctly, in accordance with the IRPF Law and the General Tax Law. Each international income situation must be analyzed to ensure that the calculation of the average effective tax rate is accurate.