7.2.4. Reductions in total performance

As a general rule, gross income will be computed in its entirety, unless any of the following reductions apply:

• Irregular performances: 30% reduction

• Benefits of certain social security systems: 30% reduction

• Reductions of the transitional regime: collective insurance, and certain social security systems

30% REDUCTION (Art. 18.2 Law)

A reduction of 30 percent will be applied to income with a generation period of more than two years and for which this reduction has not been applied within the previous five tax periods, as well as those classified by regulation as having been obtained in a notoriously irregular manner over time.

The amount of gross income to which the reduction will be applied may not exceed 300,000 euros per year.

Without prejudice to the limit provided for in the preceding paragraph, in the case of employment income whose amount is between 700,000.01 and 1,000,000 euros and arises from the termination of the employment relationship, whether common or special, or the commercial relationship referred to in article 17.2 of the Tax Law, or both, the amount of the income to which the reduction will be applied may not exceed the amount resulting from reducing 300,000 euros by the difference between the amount of the income and 700,000 euros.

When the amount of such income is equal to or greater than 1,000,000 euros, the amount of income to which the 30 percent reduction will be applied will be zero .

When the income from work with a generation period of more than two years is received in installments, this 30% reduction will only be applicable if the quotient resulting from dividing the number of years of generation, computed from date to date, by the number of tax periods of installment, is greater than two (art. 10.2 Rgl.).

Income from work resulting from compensation for termination of the relationship with administrators with a generation period of more than two years may apply the reduction when the quotient resulting from dividing the number of years of generation, computed from date to date, by the number of tax periods of fractionation is greater than two years, provided that the date of termination of the relationship is prior to August 1, 2014.

Stock call options.

Without prejudice to the above limit, in the case of income derived from the exercise of options to purchase shares or interests by employees, the amount of income to which the 30% reduction will be applied may not exceed the amount resulting from multiplying the average annual salary of all taxpayers in the Personal Income Tax by the number of years in which the income was generated. For these purposes, when the returns are obtained in a clearly irregular manner over time, five years will be taken.

For these purposes, work income with a generation period of more than two years that is not obtained periodically and recurrently will be considered when it is exercised more than two years after its concession, and, in addition, it is not granted annually.

General plans for delivery of stock options.

The maximum reduction limit provided for in the previous section will be doubled when workers meet the following requirements:

• The shares or interests acquired must be held for at least three years from the date of exercise of the purchase option.

• The offer of purchase options must be made under the same conditions to all employees of the company, group or subgroup of companies.

INCOME OBTAINED IN A NOTORIOUSLY IRREGULAR MANNER (art. 11 Rgl.)

The following are considered to be income from work obtained in a notoriously irregular manner over time, only when they are attributed to a single tax period:

• Amounts paid by the company to employees due to transfer to another workplace that exceed the amounts exempt from tax.

• Compensation derived from public Social Security or Civil Service schemes, as well as benefits paid by Orphanages and similar Institutions, in cases of non-disabling injuries.

• Benefits paid for non-disabling injuries or permanent disability, in any degree, by companies and public entities.

• Death benefits and funeral or burial expenses that exceed the exempt limit, of workers or civil servants, both those of a public nature and those paid by Orphanages and similar institutions, companies and by Public Entities.

• Amounts paid in compensation or reparation for salary supplements, pensions or annuities of indefinite duration or for the modification of working conditions.

• The amounts paid by the company to the workers for the resolution of the employment relationship by mutual agreement. The number of years of service of the worker will be considered as the generation period.

• Literary, artistic or scientific prizes that do not benefit from exemption from this Tax. For these purposes, economic benefits derived from the assignment of intellectual or industrial property rights or which replace them are not considered prizes.

BENEFITS OF CERTAIN SOCIAL SECURITY SYSTEMS (art. 18.3 Law)

The benefits of the social security systems of article 17.2.a) 1 and 2 of the Tax Law will be reduced by 30 percent when they are received in the form of capital, provided that more than two years have passed since the first contribution. However, this period does not need to elapse in the case of disability benefits.

TRANSITIONAL REGIME REDUCTIONS (DT 11 and 12 Law)

Transitional regime of collective insurance:

1. Benefits arising from contingencies occurring before January 1, 2007:

   Beneficiaries will be able to apply the financial and tax regime in force as of December 31, 2006.

2. Benefits arising from contingencies occurring after January 1, 2007, from group insurance contracted before January 20, 2006:

   The tax regime in force on December 31, 2006 may be applied. This regime will only be applicable to the part of the benefit corresponding to the premiums paid up to December 31, 2006, as well as the ordinary premiums provided for in the original policy paid after this date.

However, collective insurance contracts that implement the externalization of pension commitments agreed in collective agreements at a supra-company level under the name "retirement bonuses" or others, which consist of a benefit payable once only at the time of cessation due to retirement, signed before December 31, 2006, may apply the tax regime provided for in section 2 above.

Transitional regime for pension plans, social welfare mutual funds and insured pension plans:

1. Benefits arising from contingencies occurring prior to January 1, 2007:

   Beneficiaries may apply the financial regime and, where applicable, apply the reduction provided for in article 17 of the Revised Text of the Personal Income Tax Law in force on 31 December 2006.

2. Benefits arising from contingencies occurring after January 1, 2007, for the part corresponding to contributions made up to December 31, 2006:

   Beneficiaries may apply the financial regime and, where applicable, apply the reduction provided for in article 17 of the Revised Text of the Personal Income Tax Law in force on 31 December 2006.

As of January 1, 2015, a transitional period has been established for applying the 30 percent reduction, both for group insurance and for social security systems:

• For contingencies occurring after January 1, 2015, the reduction will only be applied to the capital benefit obtained in the year in which the corresponding contingency occurs, or in the two following years.

• For contingencies occurring in the years 2011 to 2014, the reduction will only be applied to the benefit in the form of capital obtained before the end of the eighth year following the year in which the corresponding contingency occurred.

• For contingencies that occurred in the 2010 or earlier years, the reduction will only be applied to the capital benefit obtained up to December 31, 2018.

Therefore, if the capital benefit is obtained after the specified deadlines have ended, no reduction will be applied.

CAPITAL BENEFITS (art. 11.5 Rgl.)

These reductions only apply to benefits in the form of capital consisting of a single payment.

In the case of mixed benefits, which combine income of any type with a single payment in the form of capital, the reductions referred to will only be applicable to the payment made in the form of capital.