Special case: payment of dividends through the delivery of fully paid-up shares
It is common practice for listed companies to replace the payment to their shareholders of a cash dividend with a capital increase through the issuance of new fully paid-up shares charged to reserves from retained earnings, granting their shareholders the corresponding free allocation rights for their subscription.
In these cases, the shareholders, holders of the free allocation rights, can subscribe for the new shares, or transfer said rights in the market. In the event that neither of these two possibilities is chosen, the company agrees to pay the shareholders a certain monetary compensation for each allocation right.
The tax treatment applicable to natural person partners who are taxpayers of Personal Income Tax will be as summarized in the following table:
|Shareholder options in the “||Taxation|
|As of 01-01-2017||Until 12-31-2016|
|Sale of free allocation rights in the secondary market.||Capital gain in the year in which the transfer occurs, subject to withholding.||The amount obtained reduced the acquisition value of the shares when they were transferred. If the amount obtained was greater than the acquisition value of the shares, the excess was considered capital gain.|
|Delivery to shareholders of fully paid-up shares.||Does not constitute income (*)||Does not constitute income (*)|
|Compensation for assignment rights not exercised or transferred.||Dividend: Return on movable capital subject to withholding.||Dividend: Return on movable capital subject to withholding.|
(*) The acquisition value, both of the released shares and the shares from which they come, will result from dividing the total cost between the title number.
Don MPZ On March 3, 2007, it acquired 200 shares of the company RR on the stock market for an amount of 2,000 euros (10 euros per share) according to their price on that date.
On January 5, 2011, the company RR announces that, to improve its dividend payment policy, it agrees to increase its share capital through the issuance of new fully paid-up shares charged to reserves from undistributed profits, granting its shareholders the corresponding free allocation rights.
Regarding those holders of free allocation rights who do not subscribe new shares or transfer them, the RR company agreed to pay 1.50 euros gross for each of them.
Don MPZ On January 15, 2011, it sold all the free allocation rights that corresponded to it for 300 euros.
On May 5, 2021, the RR company carried out a new expansion and Don MPZ He sells all his rights obtaining 400 euros.
On August 7 Don MPZ sells all the shares for 2,200 euros.
1. Sale of subscription rights 05-05-2021
Capital gain derived from transfers of subscription rights = 400
2. Sale of the shares of the RR company on 08-07-2021
Determination of the acquisition value of the shares for the transfer of free allocation rights carried out prior to January 1, 2017.
Note: In accordance with the provisions of article 306.2 of the Consolidated Text of the Capital Companies Law, approved by Royal Legislative Decree 1/2010, of July 2 (BOE of July 3), to the rights of free allocation of the New shares in cases of capital increase charged to reserves will be subject to the transfer rules provided for in said provision for pre-emptive subscription rights.
Consequently, following the tax regime established for preferential subscription rights, and in accordance with the provisions of the twenty-ninth transitional provision of the Personal Income Tax Law, it is deducted from the value for which the shares were acquired on March 3, 2007 ( 2,000 euros) the amount obtained from the sale of free allocation rights carried out on January 15, 2011 (300 euros).
Acquisition value = 2,000
Subscription rights value = 300
New acquisition value (2,000 - 300) = 1,700
Acquisition value/share (1,700 ÷ 200) = 8.50
Determination of capital gain or loss
Transmission value = 2,200
Acquisition value = 1,700
Capital gain (2,200 -1,700) = 500
Capital gain derived from transfers of negotiated shares = 500