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V2393-24 25 November 2024 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · exención de dividendos

Dividend exemption applies only to profits generated after the acquisition of shares

An entity inquired whether the exemption under Article 21 of the Corporate Income Tax Act could apply to dividends distributed from reserves generated both before and after the acquisition of its shares. The Directorate General for Taxes (DGT) ruled that the exemption only applies to the portion representing a distribution of profits and not to the recovery of the investment.

The question raised

Whether, in the event of a dividend distribution by the consulting entity to its sole shareholder, charged against consolidated available reserves generated both before and after the acquisition of the social shares, the exemption provided for in Article 21 of Law 27/2014, of November 27, on Corporate Income Tax, is applicable, despite the fact that part of said reserves were generated, for the most part, in periods prior to the time of holding the shares.

The DGT's ruling

According to accounting regulations, if dividends exceed the profits generated since the acquisition, the excess is considered a recovery of the investment and reduces the book value of the holding. Regarding that portion of recovery, the exemption under Article 21 of the LIS is not applicable as there is no income subject to tax. The exemption is only applicable to the portion of the dividends corresponding to profits generated subsequent to the acquisition, provided that the requirements regarding participation and holding period are met.

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