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V2606-14 6 October 2014 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · novación no extintiva

Non-extinguishing novation of a participatory loan credit does not trigger the reversal of deferred profit

A company inquired whether converting an outstanding credit into a participatory loan through non-extinguishing novation would require the reversal of deferred profit from an instalment sale. The DGT ruled that such a transformation does not trigger said reversal.

The question raised

Whether the non-extinguishing novation and the transformation into a participating loan of the outstanding credit that A held against its subsidiary B triggers the reversal of the portion of the profit deferred in the installment transaction, increasing the Corporate Income Tax base of the taxpayer.

The DGT's ruling

Non-extinguishing novation and the transformation of a credit into a participating loan do not trigger the reversal of the portion of the profit deferred in the installment transaction. However, modificatory novation could entail some income that must be included in the tax base due to the absence of a specific regulation. Participating loans shall be accounted for at amortized cost, with financial income and expenses accruing according to the effective interest rate.

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