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V5109-16 25 November 2016 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · condonación de crédito

Forgiveness of a loan between dependent companies does not generate expense or income for Corporate Tax (except for excess participation)

The tax effect of forgiving a loan between two companies (A and B) owned by the same individual is examined. The DGT determines that, depending on the accounting treatment, no expense or income is generated for Corporate Tax purposes for the companies involved, in proportion to their shareholding.

The question raised

The question is raised as to what the effects of said operation are on the Corporate Income Tax of entities A and B and on the Personal Income Tax of the individual shareholder.

The DGT's ruling

For companies A and B, the forgiveness of a credit between related parties does not generate an accounting or tax expense in the creditor company, nor an accounting or tax income in the debtor company, provided it is carried out in proportion to their shareholding. In Personal Income Tax, the forgiveness of a loan between companies does not produce effects for individual shareholders as they are external to the loan. Regarding a shareholding percentage that is not identical, income will indeed be generated in the debtor entity.

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