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Practical Income Manual 2022.

a) Reductions in share capital

None of the methods of reduction of share capital immediately give rise to a capital gain or loss derived from said operation, but this will be generated when the values or shares affected by the reduction of share capital are transferred, resulting in a deferral in the taxation of these incomes.

In accordance with the provisions of articles 317 and following of the consolidated text of the Capital Companies Law, approved by Royal Legislative Decree 1/2010, of July 2 ( BOE of July 3 July), which repeals, with effect from September 1, 2010, the consolidated text of the Public Limited Companies Law, the purpose of the capital reduction may be the return of contributions, the forgiveness of passive dividends, the constitution or increase of the legal reserve or voluntary reserves or the reestablishment of the balance between the capital and the assets of the company diminished as a result of losses. The reduction may be carried out by reducing the nominal value of the shares, their amortization or their grouping to exchange them.

However, in cases of capital reduction with return of contributions to partners, immediate tax effects may occur, since the amount of the return of contributions, or the normal market value of the assets or rights received, if received in kind, will reduce the acquisition value of the affected securities or participations (taking into account that those acquired in the first place are considered affected) until their cancellation. The excess that may result will be taxed as income from capital in the manner provided for the distribution of the share premium.

If the capital reduction comes from undistributed profits, all amounts received will be taxed as dividends. 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.

The tax treatment applicable in the cases of capital reduction and distribution of the share premium carried out after September 23, 2010 by variable capital investment companies (SICAV), is discussed in Chapter 5 of this manual.

Immediate tax effects may also occur in the case of a capital reduction whose purpose is the return of contributions and does not come from undistributed profits, corresponding to securities not admitted to trading in any of the regulated securities markets defined in Directive 2014/ 65/ EU of the European Parliament and of the Council, of May 15, 2014, relating to markets in financial instruments, and representative of participation in own funds of companies or entities.

Note that although article 33.3 Law Personal Income Tax refers to Directive 2004/39/EC, of the European Parliament and of the Council, of April 21, 2004, relating to instrument markets financial, said directive was repealed, with effect from 3 January 2017, by Directive 2014/65/ EU of the European Parliament and of the Council, of 15 May 2014, relating to financial instrument markets. This, in its article 94, provides that references to Directive 2004/39/EC will be understood to be made to Directive 2014/65/ EU .

In this case, article 33.3 of the Personal Income Tax Law considers return on capital to be the amount obtained or the market value of the goods received, up to the limit of the positive difference between the value of the participation according to the own funds corresponding to the last financial year closed prior to the date of capital reduction and the acquisition value of the title. Now, the excess over this limit will reduce the acquisition value of the shares or participations until it is nullified and if the amount received also exceeds the amount of the acquisition value, the new excess will be taxed as income of movable capital.

Income from movable capital in the case of distribution of the share premium and capital reduction with return of contributions that do not come from undistributed profits, corresponding to securities not admitted to trading, They are discussed in Chapter 5 of this manual, within the section "Income obtained from participation in equity funds of any type of entity."

Rules applicable to shares affected by reduction of share capital .

Regulations: Art. 33.3 and Additional Provision Eighth Law Personal Income Tax

For the purposes of determining the amount of the future capital gain or loss, the Personal Income Tax Law incorporates precise rules in order to identify the securities or shares affected by the capital reduction and the tax repercussions that This originates in the acquisition values and in the transfer values of the securities or shares not admitted to trading that are transferred after the capital reduction.

  • If the reduction of share capital, whatever its purpose, is implemented through the amortization of securities or participations, the shares acquired first will be considered amortized, and their acquisition value will be distributed proportionally among the remaining homogeneous securities that remain in the taxpayer's assets.

  • When the reduction of share capital is carried out by other means, such as, for example, reducing the nominal value of the shares and does not equally affect all the securities or shares in circulation of the taxpayer, it will be understood to refer to those acquired first.

    Otherwise, the capital reduction will be understood to have occurred in each of the shares or participations in which it has been carried out.

  • When securities or participations not admitted to trading are transferred after a capital reduction implemented through a decrease in the nominal value that does not affect all the securities or participations equally, the transfer value will be considered to be that which would correspond based on the nominal value. that results from the application of the provisions of the previous paragraph. In the event that the taxpayer has not transferred all of his securities or participations, the positive difference between the transfer value corresponding to the nominal value of the securities or participations actually transferred and the transfer value will be reduced from the acquisition value of the remaining homogeneous values or shares until their cancellation. The excess could be taxed as capital gain.