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An entity holding 50% of company A, which in turn holds 10% in B and 5% in C, seeks to transfer its share in A in a year when A exceeds 70% of dividend income. Since G meets the minimum indirect shareholding threshold of 5% only for B (5% indirect shareholding) and not for C (2.5% indirect shareholding), exemption under article 21.3 LIS applies only to the portion of capital gain attributable to B. The DGT does not address the 2023 exercise as it involves future facts at the time of the inquiry.
Question raised The consultant intends to transfer the entirety of its participation in A. Taking this circumstance into account, the following is posed:
Article 21.3 LIS requires that, when the directly held entity is considered a holding company (more than 70% of income from dividends/rents), the shareholder must prove a minimum indirect participation of 5% held for more than one year in the indirectly held entities. In the specific case, G holds an indirect participation of 5% in B (complies) and 2.5% in C (does not comply). Consequently, the exemption only applies to the portion of the capital gain attributable to the undistributed profits generated by B. The holding period of A's participations in B and C is not recorded, therefore the DGT cannot rule on that requirement. The amount of exempt income is reduced by 5% for management expenses (art. 21.10 LIS).
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