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V0191-14 28 January 2014 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · condonación de deuda

Full debt forgiveness between parent and subsidiary generates no tax effects

A Spanish subsidiary asks whether forgiving a debt to its 100% German parent company, recorded accountably as a contribution of own funds, results in taxable income. The DGT responds that, due to the 100% parent-subsidiary relationship, the transaction is a patrimonial transfer with no tax consequences under Corporate Income Tax.

The question raised

If, upon application of accounting regulations, the consulting entity were required to reflect income in its accounts due to the forgiveness of debt regarding the debt owed to the German parent company, should it be understood that, in the tax field, the market value at which said forgiveness occurs corresponds to the contractual obligation between the German parent company and the consulting entity and, consequently, regardless of its accounting treatment, no tax income or expense is generated in either the consulting entity or the German parent company as a result of the forgiveness.

The DGT's ruling

When a 100% shareholder-company relationship exists between the lender and the borrower, the forgiveness or capitalization of a loan is considered a contribution to equity. In this scenario, the market value coincides with the existing contractual obligation, therefore no tax income or expense is generated, regardless of whether the loan is impaired for accounting purposes. If the shareholding is less than 100%, this treatment applies only to the proportional part of said shareholding.

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