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V0949-14 3 April 2014 · SG de Fiscalidad Internacional Criterion in force
IRNR · reducción de capital

Exemption applies only if capital reduction stems from undistributed profits

A Danish company asks whether the return of real estate via capital reduction in its Spanish subsidiary is exempt. The DGT responds that the EU exemption applies only if the capital reduction arises from undistributed profits.

The question raised

Taxation of the return of real estate and the classification that must be assigned to the amount of the real estate value that exceeds the acquisition cost of the amortized shares. Possibility of considering such excess dividend exempt from taxation in Spain.

The DGT's ruling

If the capital reduction returns contributions that have not been previously taxed, there is no economic double taxation and the exemption under Article 14.1.h) of the TRLIRNR is not applicable. Conversely, if the return arises from undistributed profits, the entire amount is considered income from movable capital and the exemption could potentially be applied. The transformation from a public limited company to a limited liability company does not constitute a liquidation, and therefore does not prevent the application of said exemption provided that the other requirements are met.

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