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2021 Corporation Tax practical guide.

Exemption of income obtained in the cases of art. 21.3 LIS other than the assignment of securities of resident and non-resident entities in Spanish territory

Article 21,3 of the Spanish Corporation Tax Act establishes that the positive income obtained in the event of liquidation of the company, separation of partner, merger, total or partial demerger, reduction of capital, non-monetary contribution or global transfer of assets and liabilities, will be exempt when it is fulfilled:

  • The requirement set out in point (a) of article 21,1 of the Spanish Corporation Tax Act on the day on which the transfer takes place.

  • In addition, in the case of transfer of shares of non-resident companies, the requirement set out in Article 21,1 (b) of the Spanish Corporation Tax Act, which must be met in each and every year of holding the shareholding.

A. Partial exemption

This exemption can also be applied partially in the same way as we have indicated in the event of the exemption on income obtained in the transfer of securities from resident and non-resident companies in Spanish territory.

Special rules

In the following cases, the application of this exemption will have the following specialities:

  1. When the participation in the entity has been valued in accordance with the rules of the special regime of Chapter VII of Title VII of this Act and the application of these rules would have determined the non-integration of income into the taxable income of this tax, or of the Income Tax of Non-Residents, derived from:

    • The contribution of the participation in a company that does not meet the requirement of point (a) or, in whole or in part, in at least some financial year, the requirement referred to in point (b) of paragraph 1 of this article.

    • The non-monetary contribution of other assets that differ from holdings in entities' own capital or funds.

    In this case, the exemption will not be applied on the transferor's deferred income as a result of the operation, unless proof is provided that the acquiring company has integrated this income in its gross tax base.

  2. When the participation in the company has been valued in accordance with the rules of the special regime of Chapter VII of Title VII of the Spanish Corporation Tax Act and the application of these rules would have determined the non-integration of income into the taxable base of the Personal Income Tax, derived from the contribution of holdings in companies.

    In this case, when such holdings are subject to a transfer in the two years following the date on which the operation took place, the exemption will not be applied to the positive difference between the fiscal value of the shares received by the acquiring company and the market value at the time of the acquisition, unless proof is provided that the natural persons have transferred their holdings in the company during the aforementioned period.

B. Negative income

Negative income generated in the event of the termination of the investee company will be tax deductible, unless this is the result of a restructuring operation.

In this case, the amount of negative income will be reduced by the amount of dividends or shares in profits received from the entity in the ten years prior to the date of termination, provided that the aforementioned dividends or profit shares have not reduced the acquisition value and have been entitled to the application of an exemption or deduction regime for the elimination of double taxation, for the amount of the same.

C. Reduction of exemption for management expenses

In accordance with the provisions of article 21,10 of the Spanish Corporation Tax Act, with effect for tax periods beginning after 1 of January 2021, the amount of the positive income obtained in the other cases of article 21,3 of the Spanish Corporation Tax Act, other than the transfer of the stake in a company, it will be reduced, for the purposes of applying this exemption, by 5% as management expenses referring to these holdings.

D. Fulfilling form 200

In relation to the exemption on income obtained in the cases of article 21,3 of the Spanish Corporation Tax Act other than the transfer of securities, the following adjustments must be made:

  1. Resident entities

    • With regard to the income obtained in the event of liquidation of the entity, separation of the partner, merger, total or partial demerger, reduction of capital, non-monetary contribution or global transfer of assets and liabilities of resident entities, must be included in box [02187] " exemption on income obtained in the cases of Art. 21,3, 21,10 and DT 40 LIS other than transfers of securities of entities residents "on page 13 of form 200, the amount of the positive incomes obtained in these cases that are exempt from complying with the requirements of article 21,3 of the Spanish Corporation Tax Act.

    • In the box [02186] "Exemption on income obtained in the cases of art. 21,3, 21,10 and DT 40 LIS other than transfers of securities of resident entities "on page 13 of form 200, the amount of negative incomes obtained in the cases of article 21,3 of the Spanish Corporation Tax Act other than transfers of shares of resident entities that are not included in the taxable base.

    • With effect for tax periods beginning from 1 January 2021, as set out in article 21,10 of the Spanish Corporation Tax Act , the amount of the income obtained in the cases of article 21,3 of the Spanish Corporation Tax Act other than the transfer of securities, to which the exemption of article 21,3 of the Spanish Corporation Tax Act is applicable, it will be reduced by 5% as management , so taxpayers applying the exemption, must take this reduction into account when filling in the boxes [02186] and [02187] on page 13 of form 200.

  2. Non-resident entities

    • As for the income obtained in the transfer of shares of non-resident companies, it must be included in box [02189] " exemption on income obtained in the cases of Article 21,3, 21,10 and DT 40 LIS other than transfers of securities of non-resident entities "on page 13 of Form 200, the amount of the positive incomes obtained in these cases that are exempt from complying with the requirements of article 21,3 of the Spanish Corporation Tax Act.

    • In the box [02188] "Exemption on income obtained in the cases of art. 21,3, 21,10 and DT 40 LIS other than transfers of securities of non-resident companies "on page 13 of form 200, the amount of the negative incomes obtained must be included in the cases of article 21,3 of the Spanish Corporation Tax Act, other than transfers of shares of resident entities that are not included in the taxable base.

    • With effect for tax periods beginning from 1 January 2021, as set out in article 21,10 of the Spanish Corporation Tax Act , the amount of the income obtained in the cases of article 21,3 of the Spanish Corporation Tax Act other than the transfer of securities, to which the exemption of article 21,3 of the Spanish Corporation Tax Act is applicable, it will be reduced by 5% as management , so taxpayers applying the exemption, must take this reduction into account when filling in the boxes [02188] and [02189] on page 13 of form 200.