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Practical Manual of Companies 2020.

Exemption of income obtained in the assignment of securities of resident and non-resident entities in Spanish territory

article 21.3 of the LIS establishes that the positive income obtained in the transfer of the participation in an entity will be exempt when complied with.

The requirement provided for in letter a) of article 21.1 of the LIS on the day on which the transmission occurs.

Additionally, in cases of transfer of participations of non-resident entities, the requirement provided for in letter b) of article 21.1 of the LIS must be met in each and every year of holding the participation.

Partial exemption

  1. In the event that the requirement provided for in letter b) of article 21.1 of the LIS is not met in one or some of the years of ownership of the participation, the exemption provided for in this section will be applied in accordance with the following rules:

    1. With respect to that part of the income that corresponds to a net increase in undistributed profits generated by the investee entity during the time of holding the participation, the part that corresponds to the profits generated in those years in which the requirement established in letter b) of article 21.1 of the LIS is met.

    2. Regarding that part of the income that does not correspond to a net increase in undistributed profits generated by the investee entity during the time of holding the participation, it will be understood to be generated linearly, unless proven otherwise, during the time of ownership of the participation, being considered exempt that part that proportionally corresponds to the ownership in the years in which the requirement established in letter b) of article 21.1 of the LIS has been met.

  2. In the case of transfer of the participation in the capital or in the own funds of a resident or non-resident entity in Spanish territory that, in turn, participates in two or more entities with respect to which only one or some of them meet the requirements set forth in letters a) or b) of article 21.1 of the LIS, the exemption provided for in this section will be applied in accordance with the following rules:

    1. With respect to that part of the income that corresponds to a net increase in undistributed profits generated by the indirectly participated entities during the time of holding the participation, that part of the income that corresponds to the profits generated by the entities will be considered exempt. entities in which the requirement established in letter b) of article 21.1 of the LIS is met.

    2. With respect to that part of the income that does not correspond to a net increase in undistributed profits generated by the indirectly participated entities during the time of holding the participation, the part that is proportionally attributable to the entities in which the participation has been held will be considered exempt. fulfilled the requirement established in letter b) of article 21.1 of the LIS.

The part of the income that is not entitled to the exemption in the terms indicated in article 21.3 of the LIS will be integrated into the tax base, having the right to the deduction established in article 31 of the LIS, if its application proceeds, provided that the necessary requirements for this are met. However, for the purposes of what is established in letter a) of article 21.1 of the LIS, exclusively the effective amount of what was paid abroad will be taken as a result of a tax of a nature identical or analogous to this Tax, by the part that proportionally corresponds to the income that does not have the right to the exemption corresponding to those years or entities with respect to which the requirement established in letter b) of article 21.1 of the LIS has not been met, in relation to the total income obtained in the transmission of participation.

Negative income

  1. Negative income derived from the transfer of the participation in an entity, with respect to which any of the following circumstances apply, will not be included in the tax base ##:

    1. that the requirements established in article 21.3 of the LIS are met. However, the requirement regarding the percentage of participation or acquisition value, as applicable, will be deemed to have been met when it has been reached at some point during the year prior to the day on which the transfer occurs.

    2. In the case of participation in the capital or own funds of entities not resident in Spanish territory, the requirement established in letter b) of article 21.1 of the LIS is not met.

    In the event that the aforementioned requirements are partially met, in the terms established in article 21.3 of the LIS, the provisions above will be partially applied.

  2. Negative income derived from the transfer of participation in entities in respect of which none of the circumstances provided for in the previous point occur will be included in the tax base ##, with the following specialties:

    1. In the event that the participation had previously been transferred by another entity that meets the circumstances referred to in article 42 of the Commercial Code to form part of the same group of companies with the taxpayer, regardless of residence and obligation of formulating consolidated annual accounts, said negative income will be reduced by the amount of the positive income generated in the preceding transfer to which an exemption or deduction regime would have been applied for the elimination of double taxation.

    2. The amount of negative income will be reduced , if applicable, in the amount of dividends or shares in profits received from the investee entity from the tax period that is began in 2009, provided that the aforementioned dividends or participation in profits have not reduced the acquisition value and have been entitled to the application of the exemption provided for in article 21.1 of the LIS.

Cases of non-application of the exemption

The exemption provided for in article 21.3 of the LIS will not apply:

  1. To that part of the income derived from the transfer of the participation, direct or indirect, in an entity that is considered a property entity, according to article 5.2 of the LIS, that does not correspond to an increase in undistributed profits generated by the investee entity during the time of holding the participation.

  2. To the portion of income derived from the transferral of a holding in a Spanish or European economic interest group, which does not correspond with an income of non-distributed profits generated by the controlled company during the time in which the holding was maintained.

  3. To income derived from the transfer of the holding, direct or indirect, in a company that meets the requirements established in article 100 of the LIS, provided that at least 15% of its income is subject to the international fiscal transparency system that is regulated in said article.

When the circumstances indicated in letters a) or c) of this section are met only in one or some of the tax periods of holding the participation, the exemption will not apply with respect to that part of the income referred to in said letters that proportionally corresponds to those tax periods.

Filling in form 200

In relation to the exemption on income obtained in the transfer of securities, regulated in article 21.3 of the LIS, the following adjustments must be made:

  1. Resident entities

    • Regarding the income obtained in the transfer of shares of resident entities, must be included in box [02183] «Exemption on income obtained in the transfer of securities entities residents (art. 21.3 LIS)» on page 12 of model 200, the amount of positive income obtained from said transfer that is exempt for complying with the requirements of article 21.3 of the LIS.

    • In box [02182] "Exemption on income obtained in the transfer of securities to resident entities (art. 21.3 LIS)" on page 12 of form 200, the amount of the negative income obtained in the transfer of shares of resident entities that are not included in the tax base because they meet the requirements of article 21.3 of the LIS or because they do not meet the requirement of letter b) of article 21.1 of the LIS.

  2. Non-resident entities

    • Regarding the income obtained in the transfer of shares of non-resident entities, it must be included in box [02185] «Exemption on the income obtained in the transfer of securities to non-resident entities (art. 21.3 LIS) » on page 12 of form 200, the amount of positive income obtained from said transfer that is exempt for complying with the requirements of article 21.3 of the LIS.

    • In box [02184] “Exemption on income obtained in the transfer of securities to non-resident entities (art. 21.3 LIS)” on page 12 of form 200. The amount of negative income obtained in the transfer of shares of non-resident entities that are not included in the tax base because they meet the requirements of article 21.3 of the LIS or because they do not meet the requirement of letter b) of the article must be incorporated. 21.1 of the LIS.