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Practical manual for Income Tax 2023.

Example: Income from the transfer of own capital to third parties

Mr. MLH, single, has obtained the following income during the year 2023:

  • On January 10, he receives 400 euros in interest on a deposit for eight years and one day (tax date January 9, 2013; taxed capital 20,000 euros).

  • On May 26, he subscribes to "M, SA" bonds, for five years, for a cash amount of 10,800 euros, with annual coupon payment (on May 25). On October 3, it transfers half of the bonds for 5,800 euros, incurring transfer costs of 30 euros. "M, SA" is listed on the Stock Exchange and the obligations are represented by book entries.

  • On October 30, he received 5,000 euros in annual interest from "Z, SA", of which he is the sole director and majority shareholder, for the loan that he made to the company on October 29, 2017, for an amount of 70,000 euros. This loan will be fully repaid on October 30, 2023. The amount of interest corresponds to the market value.

    In the balance sheet for the 2022 financial year, closed on 31 July 2023, "Z, SA" had equity of EUR 50,000 and the taxpayer's shareholding as of 31 December was 40%.

  • On December 12, he sells 100 bonds of "T, SA" for 7,210 euros, after deducting the expenses inherent to said transfer paid by the transferor. These bonds were acquired in March 2013 for 7,815 euros. On December 28, he again bought 100 bonds from the same company for 8,414 euros.

  • On December 18, he received 210 euros in interest on discounted bonds from a toll highway concession company to which the 95% bonus on Capital Income Tax is applicable. The actual withholding tax is 2.52 euros.

  • On December 28, it transfers State bonds for a cash amount of 30,050 euros. These bonds were acquired for an amount equivalent to 27,600 euros, including the costs inherent to said acquisition.

Determine the net return on movable capital to be included in the taxable base of IRPF and the deductible withholdings, assuming that the financial institution has charged 41 euros to your account for administration and deposit expenses for negotiable securities.

Solution:

1. Interest on eight-year and one-day deposits

  • Total yield = 400
  • Retention (19% s/400) = 76

2. Transfer of obligations "M, SA"

  • (+) Transmission value (5,800 – 30) = 5,770
  • (-) Acquisition value (1/2 x 10,800) = 5,400

  • (=) Total yield = 370

  • Retention = 0

3. Interest on loans to related entities

  • Total return = 5,000

    Of which:

    1. a) Part of the income to be integrated into the general tax base: (1)

      70,000 – [40% (50,000 x 3)] = 70,000 – 60,000 = 10,000

      10,000 / 70,000 x 100 = 14.29%

      5,000 x 14.29% = 714.50

    2. b) Part of the income to be integrated into the taxable savings base: (2)

      5,000 – 714.50 = 4,285.50

  • Retention (19% s/5,000) (3) = 950

Notes:

(1) Since the returns from a loan made to an entity related to the taxpayer come from, the interest corresponding to the excess of the amount of the equity transferred to the related entity (70,000 euros) with respect to the result of multiplying by three the equity in the part that corresponds to the taxpayer's participation in the latter [40% (50,000 x 3) = 60,000] must be integrated into the general tax base.  The excess amount, which amounts to 10,000 euros (70,000 – 60,000), represents 14.29% of the loan, so the interest to be included in the general tax base will be the result of applying this percentage to the total interest received (5,000 x 14.29% = 714.50). (Back)

(2) The remaining interest (5,000 – 714.50 = 4,285.50) will be included in the savings taxable base. Since there are no deductible expenses in the income to be included in the general tax base, the total amount coincides with the net amount. (Back)

(3) The withholding rate applicable in 2023 to income from the transfer of equity to third parties is 19%. (Back)

4. Transfer of obligations "T, SA"

  • (+) Transmission value = 7,210
  • (-) Acquisition value = 7,815
  • (-) Total yield = (4) –605
  • Retention = 0

Note (4) Having acquired bonds of the same company within the period of two months, the negative return obtained cannot be computed until the bonds are sold.(Back)

5. Interest on bonds with bonuses

  • Total yield = 210
  • Withholdings actually supported (1.2% s/210) = 2.52
  • Deductible withholdings not made (22.8% s/210) = (5) 47.88

Note(5) In addition to the withholdings actually incurred (2.52 euros), the taxpayer can deduct from the tax the withholdings not actually made but which are entitled to a 95% bonus. Since the applicable tax rate on interest in the repealed Capital Income Tax was 24% and the applicable bonus is 95%, the deductible withholdings not made amount to = (22.8% s/210) = 47.88 euros. This rate is the result of applying the 95% bonus to 24% (24% x 95%) = 22.8%. (Back)

6. Transfer of State Bonds

  • Transmission value = 30,050 
  • less Acquisition value = 27,600
  • Total yield = 2,450
  • Retention = 0

7. Total gross income to be included in the taxable savings base (400 + 370 + 4,285.50 + 210 + 2,450) = 7,715.50

  • Deductible expenses = 41
  • Net return = 7,674.50

8. Total gross and net income to be included in the general tax base = 714.50