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Practical Handbook for Companies 2021

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

The 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 it is fulfilled:

  1. The requirement provided for in letter a) of Article 21.1 of the LIS on the day on which the transfer takes place.

  2. In addition, in cases of transfer of holdings in non-resident entities, the requirement set out in letter b) of article 21.1 of the LIS must be met in each and every one of the years in which the holding is held.

A. 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 more of the years in which the holding is held, the exemption provided for in this section shall be applied in accordance with the following rules:

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

    2. In respect of that part of the income which does not correspond to a net increase in undistributed profits generated by the investee during the time the holding is held, it shall be deemed to have been generated on a straight-line basis, unless there is evidence to the contrary, during the time the holding is held, and that part which proportionally corresponds to the holding in the years in which the requirement established in article 21.1 b) of the LIS has been met shall be deemed to be exempt.

  2. In the event of the transfer of a holding in the capital or equity of an entity resident or non-resident in Spanish territory which, in turn, has holdings in two or more entities in respect of which only one or some of them meet the requirements of Article 21.1 a) or b) of the LIS, the exemption provided for in this section shall be applied in accordance with the following rules:

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

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

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 included in the taxable base, with the right to the deduction established in article 31 of the LIS, if applicable, provided that the necessary requirements for this are met.However, for the purposes of Article 21.1(a) of the LIS, the effective amount of the foreign content shall be taken exclusively on the basis of an assessment of an identical or similar nature to this Tax, On the part that proportionally corresponds to income that does not have the right to exemption for those exercises or entities in respect of which the requirement set out in Article 21.1(b) of the LIS has not been met, in relation to the total income obtained in the transmission of the participation.

B. Negative income

  1. Negative income deriving from the transfer of a holding in an entity in respect of which any of the following circumstances apply shall not be included in the tax base:

    1. That the requirements established in article 21.3 of the LIS are met.However, the requirement relating to the percentage of holding or acquisition value, as the case may be, shall be deemed to be fulfilled when the same has been attained at some time during the year preceding the day on which the transfer takes place.

    2. In the case of holdings in the capital or equity of entities not resident in Spanish territory, that 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 above provisions shall be partially applied.

  2. Negative income derived from the transfer of shareholdings in entities in respect of which none of the circumstances set out in the previous point arise shall be included in the tax base , with the following specialities:

    1. In the event that the holding 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, irrespective of residence and the obligation to prepare consolidated annual accounts, such negative income shall be reduced by the amount of the positive income generated in the previous transfer to which an exemption or deduction regime had been applied for the elimination of double taxation.

    2. The amount of the negative income will be reduced by, if applicable, by the amount of the dividends or shares in profits received from the investee as from the tax period beginning in 2009, provided that the aforementioned dividends or shares 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.

C. Cases of non-application of the exemption

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

  1. That part of the income derived from the transfer of a direct or indirect shareholding in an entity that is considered an asset-holding entity, in accordance with article 5.2 of the LIS, that does not correspond to an increase in undistributed profits generated by the investee during the time the shareholding is held.

  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.

Where the circumstances referred to in points (a) or (c) of this paragraph are met only in one or more of the tax periods in which the holding is held, the exemption shall not apply in respect of that part of the income referred to in those points which corresponds proportionately to those tax periods.

D. Reduction of the exemption for management fees

According to the provisions of article 21.10 of the LIS, with effect for tax periods beginning on or after 1 January 2021, the amount of the positive income obtained on the transfer of the holding in an entity referred to in article 21.3 of the LIS, will be reduced, for the purposes of applying this exemption, by 5 per cent as management expenses relating to that holding.

E. Completion of form 200

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

  1. Resident entities

    • With regard to the income obtained in the transfer of shares in resident entities, should be included in the box [02183] "Exemption on income obtained in the transfer of securities of resident entities (art. 21.3, 21.10 and DT 40ª LIS)" on page 12 of form 200, the amount of the positive income obtained from said transfer that is exempt as it complies with the requirements of article 21.3 of the LIS.

    • In the box [02182] "Exemption on income obtained in the transfer of securities of resident entities (art. 21.3, 21.10 and DT 40ª LIS)" on page 12 of form 200, the amount of negative income obtained in the transfer of shares in 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 should be included.

    • With effect for tax periods beginning on or after 1 January 2021, as established in article 21.10 of the LIS, the amount of income obtained on the transfer of shares in entities, to which the exemption in article 21.3 of the LIS is applicable, will be reduced by 5 per cent for management expenses referring to these shares, so that entities applying the exemption must take this reduction into account when filling in boxes [02182] and [02183].
  2. Non-resident entities

    • With regard to the income obtained in the transfer of shares in non-resident entities, the amount of the positive income obtained from said transfer that is exempt because it meets the requirements of article 21.3 of the LIS should be included in the box [02185] "Exemption on income obtained in the transfer of securities of non-resident entities (art. 21.3, 21.10 and DT 40ª LIS)" on page 12 of form 200, the amount of the positive income obtained from said transfer that is exempt because it meets the requirements of article 21.3 of the LIS.

    • In the box [02184] "Exemption on income obtained in the transfer of securities of non-resident entities (art. 21.3, 21.10 and DT 40ª LIS)" on page 12 of form 200, the amount of negative income obtained in the transfer of shares in non-resident entities that are not included in the tax base either 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 must be included.

    • With effect for tax periods beginning on or after 1 January 2021, as established in article 21.10 of the LIS, the amount of income obtained on the transfer of shares in entities, to which the exemption in article 21.3 of the LIS is applicable, will be reduced by 5 per cent for management expenses in respect of those shares, so that entities applying the exemption must take this reduction into account when filling in boxes [02184] and [02185].