Specifically: Distribution of the share premium and capital reduction with return of contributions
Regulations: Articles 25.1.e) and 33.3.a) Law Personal Income Tax
We must distinguish between:
1. Securities admitted to trading on any of the stock markets of the European Union
In this case the amounts obtained from the distribution of the share premium and the capital reduction with refund of contributions corresponding to securities admitted to trading will be reduced, until their cancellation, the acquisition value of the affected shares or participations and any excess that may result will be taxed as income from movable capital not subject to withholding or deposit on account.
However, when the capital reduction comes from undistributed profits, the entire amount received for this concept will be taxed as a dividend. For these purposes, capital reductions, whatever their purpose, will be considered to first affect the part of the share capital that does not come from undistributed profits, until their cancellation.
2. Securities not admitted to trading on any of the stock markets of the European Union
These are securities not admitted to trading in any of the regulated securities markets defined in Directive 2014/65/EU (European Union) of the European Parliament and of the Council, of May 15, 2014, relating to markets in financial instruments, and representative of the participation in the own funds of companies or entities.
In the case of distribution of the share premium and capital reduction whose purpose is the return of contributions and does not come from undistributed profits , corresponding to these securities not admitted to trading must take into account the positive or negative sign of the difference between the value of the own funds of the shares or participations corresponding to the last financial year closed prior to the date of the distribution of the premium or to that of the capital reduction and its acquisition value.
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If the difference is positive , the amount obtained or the normal market value of the goods or rights received will be considered a return on capital with the limit of the aforementioned positive difference. .
Note that, although articles 25.1.e) and 33.3.a) Law Personal Income Tax refer to Directive 2004/39/EC, of the European Parliament and of the Council, of April 21 of 2004, relating to markets in financial instruments, said directive has been repealed with effect from January 3, 2017 by Directive 2014/65/EU (European Union) of the European Parliament and of the Council, of May 15, 2014, relating to financial instrument markets. This, in its article 94, provides that references to Directive 2004/39/EC will be understood as references to Directive 2014/65/EU.
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If the difference is negative or zero , the amount received will reduce the acquisition value of the shares or participations until it is nullified.
For the purposes of calculating the positive difference , the value of own funds will be reduced, where appropriate, by the following amounts:
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In the amount of profits distributed prior to the date of the distribution of the share premium or the date of the capital reduction, coming from reserves included in the aforementioned own funds.
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In the amount of the legally unavailable reserves included in said own funds that would have been generated after the acquisition of the shares or participations.
The excess over this limit, that is, the difference between the value of the own funds and the acquisition value of the shares or participations will reduce the acquisition value of these last until canceled and the part of said excess that exceeds the acquisition value will be taxed as income from movable capital not subject to withholding or deposit on account.
Likewise, in order to avoid cases of double taxation, if the distribution of the share premium or the reduction of capital whose purpose is the return of contributions and does not come from undistributed profits, returns on capital stock were determined for the aforementioned difference between the acquisition value and that of the own funds, and subsequently the taxpayer obtained dividends or participation in profits from the same entity in relation to shares or participations that had remained in its assets since the distribution of the share premium or since the reduction of capital, the amount of these will reduce the acquisition value of the same, with the limit of the returns on the movable capital previously computed by the distribution of the share premium or by the reduction of capital with return of contributions.
In short: if the own funds attributable to the individual taxpayer (reduced by the unavailable reserves included in said own funds that would have been generated after the acquisition of the shares or participations and by the amount of profits distributed prior to the date of distribution of the share premium or the capital reduction from reserves included in the aforementioned own funds) exceed the acquisition value of their shares or participations, the amount received (the distribution of the share premium or the capital reduction in the terms discussed above) , until said positive difference is taxed as income from movable capital. The rest of what is received reduces the acquisition value of the shares or participations until they are canceled and the part that exceeds the acquisition value is taxed as income from movable capital not subject to withholding or deposit on account.
The reason for this modification is that said explanatory paragraph only takes legal reserves into account as a reduction of own funds, not mentioning the reserves distributed before, which are included in own funds. At the same time, it is not specified that said legal reserves included in said own funds are those that would have been generated after the acquisition of the shares. On the other hand, the word “excess” may be confusing, since in the previous paragraph it is used in the sense of the part of the total received that exceeds the positive difference between own funds and the acquisition value, while in the This paragraph is used first as a positive difference between own funds and the acquisition value and secondly it seems that as the part of the total received that exceeds the positive difference between own funds and the acquisition value. Finally, the expression “taxed again” should be eliminated, since each component into which society's income is divided is taxed or computed only once.
Below is a practical case on this topic: