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V1791-20 5 June 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
ISD · reducción por donación

Reduction in donation of shares depends on the entity not managing real estate or movable assets

A query was raised regarding whether the reduction for the donation of company shares is maintained if the assets consist of more than 50% non-business-related real estate. The DGT ruled that if the entity manages real estate or movable assets, the exemption from Wealth Tax is lost, and consequently, the reduction in Inheritance and Gift Tax is also lost.

The question raised

1.) Application of the exemption for shares in Wealth Tax, as well as the reduction provided for in Article 20.6 of Law 29/1987 on Inheritance and Gift Tax and in Article Ten.Bis. 5 of the Valencian Generalitat Law 13/1997, of December 23, which regulates the regional tranche of Personal Income Tax and other ceded taxes. Application of the aforementioned exemption and reductions if the composition of the commercial entity's assets were to change, such that at least 50 percent of its assets consist of real estate not used for economic activities.

The DGT's ruling

To apply the 95% reduction in the donation of shares, it is a necessary condition that the donor and the donee are entitled to the exemption in Wealth Tax. If more than half of the entity's assets consist of securities or elements not used for economic activities for more than 90 days, the entity is considered to manage movable or immovable assets. In that case, the exemption will not cover the portion of the value of the shares corresponding to said non-business assets, proportionally affecting the reduction in Inheritance and Gift Tax.

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