Reduction due to compulsory endowment to the mandatory reserve fund (art. 16.5 Law 20/1990)

Article 58.1 of Law 27/1999 establishes that, of the surpluses accounted for to determine the cooperative result , once the losses of any nature from previous years have been deducted and before the consideration of the Corporate Tax, at least 20 percent will be allocated to the mandatory Reserve Fund.

Article 58.2 of Law 27/1999 establishes that of the extra-cooperative and extraordinary profits, once the losses of any nature from previous years have been deducted and before the consideration of the Corporate Tax, at least 50 percent will be allocated to the mandatory Reserve Fund.

For the purposes of liquidation, in accordance with the provisions of article 16.5 of Law 20/1990, in order to obtain the taxable base corresponding to one and another type of results that must be subject to tax, will be reduced by 50 percent of the part thereof that is obligatorily allocated to the Mandatory Reserve Fund.

Therefore, accounting the mandatory legal allocation to the Mandatory Reserve Fund of 20 percent, must be made taking as a basis the surpluses accounted for from the cooperative result , once the losses from previous years have been deducted and before considering the Corporate Tax. For the non-cooperative results it must be done in the same way, but taking into account that the mandatory legal allocation to this mandatory Fund is 50 percent.

Tax-wise, cooperative societies will have to reduce the taxable base corresponding to the cooperative result and the non-cooperative result by 50 percent of the portion thereof that has been compulsorily allocated to the Mandatory Reserve Fund (that is, 20 percent in the case of cooperative results and 50 percent in the case of non-cooperative results).

This reduction must be made through negative extra-accounting adjustments , recording in box [02843] , 50 percent of the part of the cooperative results that must be allocated to the Mandatory Reserve Fund. The same procedure will be followed with box [02845] corresponding to the extra-cooperative results.