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V3370-16 18 July 2016 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · pago contingente

Exemption under Art. 21 LIS may apply to contingent payments if participation requirements are met

A company enquired whether a contingent payment received in 2015 following the disposal of a shareholding could qualify for the exemption under Article 21 of the Corporate Income Tax Act (LIS). The DGT ruled that income is accrued when the uncertain future event occurs and that the exemption applies provided that the participation percentage requirements are met and the entity is not a holding company.

The question raised

Question posed: Whether the exemption regime under Article 21 of the Corporate Income Tax Law is applicable to a contingent payment derived from the transfer of a stake exceeding 5% in the capital of a resident company, received in the 2015 fiscal year.

The DGT's ruling

If the contingent price could not be estimated at the time of the transfer, the income is imputed to the period in which the future event occurs. The exemption under Article 21 of the LIS is applicable to such income if the requirements of a minimum 5% participation and uninterrupted holding are met. However, if the entity is a holding company, the exemption shall not apply to the portion of the income that does not correspond to an increase in undistributed profits generated during the holding period.

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