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Practical manual for Income Tax 2023.

a) Reductions in share capital

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

In accordance with the provisions of articles 317 et seq. of the consolidated text of the Capital Companies Act, approved by Royal Legislative Decree 1/2010, dated 2 July ( BOE of 3 July), which repeals, with effect from 1 September 2010, the consolidated text of the Public Limited Companies Act, the reduction of capital may have the purpose of returning contributions, forgiving passive dividends, establishing or increasing the legal reserve or voluntary reserves or restoring the balance between the capital and the assets of the company reduced as a result of losses. The reduction may be carried out by decreasing the nominal value of the shares, redeeming them or grouping them together for exchange.

However, in cases of capital reduction with the 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 shares (taking into account that those acquired first are considered affected) until their cancellation. Any excess that may result will be taxed as income from movable capital in the manner provided for the distribution of the issue 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 affect first of all the part of the share capital that does not come from undistributed profits, until their cancellation.

The tax treatment applicable in cases of capital reduction and distribution of the issue 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 Tax Law considers the amount obtained or the market value of the assets received as income from movable capital, up to the limit of the positive difference between the value of the participation according to the equity corresponding to the last fiscal year closed prior to the date of capital reduction and the acquisition value of the title. However, the excess over this limit will reduce the acquisition value of the shares or interests 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 from movable capital.

The returns on movable capital in the case of distribution of the issue premium and capital reduction with return of contributions that does not come from undistributed profits, corresponding to securities not admitted to trading, are discussed in Chapter 5 of this Manual, within the section "Income obtained from participation in the equity of any type of entity".

Rules applicable to shares affected by reduction of share capital .

Regulations: Art. 33.3 and Eighth Additional Provision Law IRPF

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

  • If the reduction of the share capital, whatever its purpose, is carried out by means of the amortization of the securities or participations, the shares acquired first will be considered to be 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 the share capital is carried out by other means, such as, for example, by reducing the nominal value of the shares and does not affect equally 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 deemed to have occurred in each of the shares or interests in which it was carried out.

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