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 LIS establishes that the positive income obtained in the cases of liquidation of the entity, separation of the partner, merger, total or partial spin-off, capital reduction, non-monetary contribution or global transfer of assets and liabilities, will be exempt when the following is met:

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

• Additionally, in the cases of transfer of shares of non-resident entities, the requirement provided for in letter b) of article 21.1 of the LIS which must be met in each and every one of the years of holding the share.

A. Partial exemption

This exemption can be partially applied in the same way we have indicated in the case of the exemption on income obtained from the transfer of securities from entities resident and non-resident 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 had been valued in accordance with the rules of the special regime of Chapter VII of Title VII of this Law and the application of said rules had determined the non-integration of income in the taxable base of this Tax, or of the Income Tax of Non-Residents, derived from:

   • The contribution of participation in an entity that does not meet the requirement of letter a) or, totally or partially at least in some financial year, the requirement referred to in letter b) of section 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 entity had been valued in accordance with the rules of the special regime of Chapter VII of Title VII of the LIS and the application of said rules had determined the non-integration of income in the taxable base of the Personal Income Tax, derived from the contribution of participations in entities.

   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 dissolution of the participating entity will be tax , unless it is result of a restructuring operation.

In this case, the amount of negative income will be reduced by the amount of dividends or profit shares received from the participating entity in the ten years prior to the date of extinction, 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 thereof.

C. Reduction of the exemption for management expenses

Pursuant to the provisions of article 21.10 of the LIS, with effect for tax periods beginning on or after January 1, 2021, the amount of positive income obtained in the remaining cases of article 21.3 of the LIS, other than the transfer of a share in an entity, will be reduced , for the purposes of applying said exemption, by 5 percent as management expenses relating to said shares.

D. Completion of form 200

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

1. Resident entities

   • With regard to income obtained in the cases of liquidation of the entity, separation of a partner, merger, total or partial spin-off, capital reduction, non-monetary contribution or global transfer of assets and liabilities of resident entities, the amount of positive income obtained in these cases that are exempt by complying with the requirements of article 21.3 of the LIS must be included 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 resident entities" on page 13 of form 200.

   • In 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 income obtained in the cases of article 21.3 of the LIS other than transfers of shares of resident entities that are not included in the tax base must be included.

   • With effect for tax periods beginning on or after January 1, 2021 , as established in article 21.10 of the LIS , the amount of income obtained in the cases of article 21.3 of the LIS other than the transfer of securities, to which the exemption of article 21.3 of the LIS applies, will be reduced by 5 percent as management expenses , so taxpayers who apply the exemption must take this reduction into account when completing boxes [02186] and [02187] on page 13 of form 200.

2. Non-resident entities

   • As regards the income obtained from the transfer of shares in non-resident entities, the amount of positive income obtained in these cases that are exempt by complying with the requirements of article 21.3 of the LIS must be included in box [02189] "Exemption on income obtained in the cases of art. 21.3, 21.10 and DT 40 LIS other than transfers of securities from non-resident entities" on page 13 of form 200.

   • In 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 entities” on page 13 of form 200, the amount of negative income obtained in the cases of article 21.3 of the LIS other than transfers of shares of resident entities that are not included in the tax base must be included.

   • With effect for tax periods beginning on or after January 1, 2021 , as established in article 21.10 of the LIS , the amount of income obtained in the cases of article 21.3 of the LIS other than the transfer of securities, to which the exemption of article 21.3 of the LIS applies, will be reduced by 5 percent as management expenses , so taxpayers who apply the exemption must take this reduction into account when completing boxes [02188] and [02189] on page 13 of form 200.