Reinvestment of excess profits

section 6 of the twenty-fourth transitional provision of the LIS establishes that the income covered by the reinvestment of extraordinary profits provided for in article 21 of the Law 43/1995, of December 27, on Corporate Tax, according to the wording in force until January 1, 2002, who had not applied the deduction established in article 36 ter of Law 43/1995 by application of section two of the Third transitional provision of Law 24/2001, of December 27, on Fiscal, Administrative and Social Order Measures, will be regulated by the provisions of the aforementioned article 21 and its implementing regulations (Chapter VII of Title I of the Regulation of the Corporate Tax, approved by Royal Decree 537/1997, of April 14).

With effect for tax periods beginning on or after January 1, 2002, article 21 of Law 43/1995, of December 27, on Corporate Tax, was repealed by Law 24/2001, of December 27, of fiscal, administrative and social order measures.

However, and by virtue of the provisions of the aforementioned twenty-fourth transitional provision of the LIS, article 21 of Law 43/1995 continues to be applicable after January 1, 2002 for those incomes that fall within its provisions (and its development rules) during its validity, and even when the reinvestment and other requirements occur in tax periods starting from that date.

Given this transitional validity of article 21 of Law 43/1995 , the main characteristics of this deferral benefit for reinvestment are set out below. The content detailed below will be valid while said article 21 of Law 43/1995 is temporarily applicable.

To benefit from the deferral of income obtained in the onerous transfer of assets , they must belong to one of these groups:

• Those belonging to property, plant and equipment .

• Those belonging to intangible assets .

• The values representing participation in the capital or own funds of all types of entities that grant a participation of no less than 5 percent of the share capital of the same and that they had been owned, at least one year prior to the date of transmission, without the values representing participation in investment funds or those others that do not grant a participation in the share capital. For the purposes of calculating the time of possession, it is understood that the values transmitted have been the oldest.

The amount of the provisions relating to the assets or securities will not be part of the income covered by the benefit, insofar as the provisions for them would have been tax deductible, nor the amounts applicable to the freedom of amortization that must be integrated into the tax base on the occasion of the transfer of the assets that enjoyed it.

The condition for the reinvestment of extraordinary profits to be applicable is that the amount of the aforementioned transfers be reinvested in any of the assets before related, within the period between the year prior to the date of delivery or making available the transferred asset element and the three subsequent years and, exceptionally, in accordance with a special reinvestment plan approved by the Tax Administration.

The reinvestment will be understood to have been carried out on the date on which the assets on which it materializes are made available. In the case of assets that are the subject of the contracts referred to in section 1 of the seventh Additional Provision of Law 26/1988, of July 29, on Discipline and Intervention of Credit Institutions (financial leasing contracts), The reinvestment will be considered to have been made on the date of execution of the contract, for an amount equal to the cash value of the asset element. The effects of the reinvestment are conditioned, with a resolutive nature, to the exercise of the purchase option.

In the event that the reinvestment is not carried out within the period indicated above, the part of the full installment corresponding to the income obtained, in addition to late payment interest, will be paid together with the corresponding installment of the tax period in which it expired or together with the fee corresponding to a previous tax period, at the taxpayer's option.

The reinvestment of an amount lower than the amount of the transfer gives the right to non-integration into the tax base of the part of income that proportionally corresponds to the reinvested amount. In this case, the part of the full quota corresponding to the income that must be integrated into the tax base, in addition to late payment interest, will be entered together with the quota corresponding to the tax period in which the deadline to carry out the reinvestment expired, or together with the fee corresponding to a previous tax period, at the taxpayer's choice.

The amount of income not integrated into the tax base must be incorporated into it by one of the following methods, at the taxpayer's choice:

1. In the tax periods that conclude in the seven years following at the close of the tax period in which the period of three years expired following the date of delivery or making available of the asset element whose transmission caused the extraordinary benefit.

   In this case, the income that proportionally corresponds to its duration in relation to the aforementioned seven years will be integrated into the tax base of each tax period.

2. In the tax periods in which the assets are amortized in which the reinvestment takes place, being amortizable assets.

   In this case, the income that proportionally corresponds to the value of the amortization of the assets in relation to their acquisition price or production cost will be integrated into the tax base of each tax period.

The amortization value will be the amount that must be considered tax deductible, and cannot be less than the result of applying the linear coefficient derived from the maximum amortization period established in the amortization tables. officially approved.

In the case of assets that are the subject of the financial leasing contracts referred to in section 1 of the seventh Additional Provision of Law 26/1988, of July 29, on Discipline and Intervention of Credit Institutions, the amounts that have been tax deductible will be taken in accordance with the provisions of section 6 of article 128 of Law 43/1995.

In the case of transmission of the asset element before its full amortization the amortization value will be understood as the amount pending amortization at the time of the amortization.

When the asset element object of the reinvestment is a building , the part of the value attributable to the land must be allocated to the method provided for in letter a) above. When the value attributed to the land is not known, said value will be calculated by prorating the acquisition price between the cadastral values of the land and the construction in the year of acquisition. However, the taxpayer may use a different criterion for distributing the acquisition price, when it is proven that said criterion is based on the normal market value of the land and the construction in the year of acquisition.

The choice of any of the methods of incorporation into the tax base of the income not integrated into it by application of the reinvestment of extraordinary profits must be carried out in the first period tax in which the incorporation of the income is appropriate, manifested together with the declaration corresponding to said tax period. Once the choice is made, it cannot be modified. If the election is not made, the method provided for in letter a) above will be applied.

In no case may income remain unintegrated into the tax base, and said integration must be carried out in accordance with the applicable method.

The assets object of the reinvestment must remain in the assets of the taxpayer , except for justified loss, until the seven-year period mentioned above has expired, except that their useful life according to the method of amortization of those admitted in section 1 of article 11 of the Tax Law, which applies, is lower. The transfer of said elements before the end of the aforementioned period will determine the integration into the tax base, of the tax period in which the transfer occurs, of the part of income pending integration, except if the amount obtained is subject to reinvestment in the terms that are being stated. In this case, the part of income pending integration must be integrated into the tax base according to the method that the taxpayer chose. When said method had been the one established in letter b) above, as long as the new reinvestment is not carried out, the result of applying the maximum linear coefficient to the amount of income eligible for the reinvestment of extraordinary profits will be integrated into the tax base. amortization according to officially approved amortization tables that corresponded to the transferred element. The same integration criterion will continue to apply in the event that the reinvestment materializes in non-amortizable elements. In the case of amortizable elements, the pending income will be integrated into the tax periods in which the assets in which this reinvestment has materialized are amortized.

Once the seven-year period referred to in letter a) above has passed, or the useful life if shorter, the transmission of the assets in which the reinvestment materialized will determine that the income pending integration at that time is integrated into the tax base of the tax periods that conclude after said transfer, in the amount resulting from applying in each of them the maximum linear amortization coefficient that corresponded to the element transferred to the amount of income obtained from the reinvestment of extraordinary profits, or to the part of that amount that proportionally corresponds, when the duration of the tax period is less than twelve months.

Filling in form 200

The box [00365] «Reinvestment of extraordinary profits ( DT 24 LIS)» on page 13 of form 200, will be used to integrate into the tax base for the period, the corresponding part of those income whose taxation had been deferred at the time by application of the provisions of the now repealed article 21 of Law 43/1995, on Tax on Companies.