Fourth transitional provision of the Personal Income Tax Law

Transitional regime for the reduction of life insurance contracts taken out before 31 December 1994 that generate increases or decreases in assets prior to 1 January 1999 (fourth transitional provision of the Personal Income Tax Law)

When deferred capital is received, the portion of the total net income corresponding to premiums paid before December 31, 1994, which was generated before January 20, 2006, may be reduced as follows:

1. The portion of the total net income obtained that corresponds to each of the premiums paid prior to December 31, 1994 will be determined.

   To do this, the total return obtained will be multiplied by the weighting coefficient resulting from the following quotient:

   • In the numerator, the result of multiplying the corresponding premium by the number of years elapsed since it was paid until the collection of the payment.

   • In the denominator, the sum of the products resulting from multiplying each premium by the number of years elapsed since it was paid until the collection of the payment.

2. The portion of the net income corresponding to each of the premiums paid prior to December 31, 1994, which was generated prior to January 20, 2006, will be determined.

   For this purpose, the amount resulting from the operation mentioned in point 1 above will be multiplied by the weighting coefficient resulting from the following quotient:

   • In the numerator, the time elapsed between the payment of the premium and January 20, 2006.

   • In the denominator, the time elapsed between the payment of the premium and the date of collection of the benefit.

3. Joint maximum limit and applicable reduction percentages

   The total amount of deferred capital corresponding to life insurance policies to which the transitional regime has been applied, obtained from January 1, 2015 until the time of temporary allocation of the deferred capital, will be calculated, distinguishing the following situations for the purposes of applying the reduction percentages:

   • That the calculated amount (including the amount of deferred capital obtained to which the transitional regime is intended to be applied) is less than 400,000 euros

     In this case, the reduction percentage of 14.28% will be applied to each of the parts of the net income calculated in accordance with the provisions of section 2 above for each year elapsed between the payment of the corresponding premium and 31 December 1994.

     When more than six years have passed between these dates, the percentage to be applied will be 100%.

   • That the calculated amount (including the amount of deferred capital to which the transitional regime is intended to apply) is greater than 400,000 euros, but the amount of deferred capital obtained to which the transitional regime is intended to apply is less than 400,000 euros.

     In this case, the reduction will be applied to each of the parts of the net income generated before January 20, 2006 that proportionally correspond to the part of the deferred capital that, added to the deferred capital obtained previously, does not exceed 400,000 euros.

   • That the amount corresponding to the deferred capital obtained previously is greater than 400,000 euros. In this case no reduction will be made.

In the section corresponding to reductions, the corresponding reductions will be applied according to the provisions of Transitional Provision 4 of the Law.