Special case: Payment of dividends through the delivery of fully paid-up shares
It is common practice for listed companies to replace the payment of a cash dividend to their shareholders with a capital increase by issuing new fully paid-up shares from reserves from undistributed profits, granting their shareholders the corresponding free allocation rights for the subscription of the same.
In these cases, the shareholders, holders of the free allocation rights, can subscribe to the new shares or transfer these rights on 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 individual partners who are taxpayers of IRPF will be as summarized in the following table:
| Shareholder options in the “ | Taxation | |
|---|---|---|
| As of 01-01-2017 | Until 31-12-2016 | |
| Sale of free allocation rights on 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 of fully paid-up shares to shareholders. | It does not constitute income (*) | It does not constitute income (*) |
| Compensation for assignment rights not exercised or transferred. | Dividend: Income from movable capital subject to withholding. | Dividend: Income from movable capital subject to withholding. |
(*) The acquisition value, both of the released shares and of the shares from which they come, will result from dividing the total cost by the number of shares.
Example
Mr. MPZ On March 3, 2007, he acquired 200 shares of the RR company on the stock exchange for an amount of 2,000 euros (10 euros per share) according to the share price on that date.
On January 5, 2011, the RR company announced that, in order to improve its dividend payment policy, it had agreed to increase its share capital by issuing 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 to new shares or transfer them, the RR company agreed to pay 1.50 euros gross for each of them.
Mr. MPZ On 15 January 2011, he sold all the free allocation rights that corresponded to him for 300 euros.
On May 5, 2021, the RR company carries out a new expansion and Don MPZ sells all his rights obtaining 400 euros.
On August 7th Don MPZ sells all shares for 2,200 euros.
Solution:
1. Sale of subscription rights 5-05-2021
Capital gains from transfers of subscription rights = 400
2. Sale of shares of the RR company on 08-07-2021
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Determination of the acquisition value of 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 Revised Text of the Capital Companies Act, approved by Royal Legislative Decree 1/2010, of July 2 (BOE of July 3), the rules of transferability provided for in said provision for preferential subscription rights will apply to the rights of free allocation of new shares in cases of capital increase charged to reserves.
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, the amount obtained from the sale of free allocation rights carried out on January 15, 2011 (300 euros) is deducted from the value for which the shares were acquired on March 3, 2007 (2,000 euros).
Acquisition value = 2,000
Subscription rights value = 300
New acquisition value (2,000 - 300) = 1,700
Purchase value/share (1,700 ÷ 200) = 8.50
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Determination of capital gain or loss
Transmission value = 2,200
Acquisition value = 1,700
Capital gain (2,200 -1,700) = 500
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Capital gains from traded share transfers = 500