Civil companies must value assets transferred upon dissolution at market value

The dissolution of an entity with a commercial purpose entails a series of tax obligations that go beyond the simple liquidation of accounts. Recently, the Dirección General de Tributos (DGT) has clarified the tax treatment that assets must receive when they are transferred to partners during the process of closing the activity.

What the DGT has ruled

The ruling addresses the situation of a civil company that, upon dissolution, allocates book inventory to a partner who will continue the economic activity. The tax authority's criteria establish that the assets transferred to partners in the dissolution of an entity subject to Corporate Income Tax (IS) must be valued at their market value.

Consequently, the transferring entity is obliged to include in its taxable base the difference between said market value and its tax value. This criterion applies as follows depending on the tax:

• Corporate Income Tax (IS): Taxation must be paid on the difference between the market value and the book/tax value of the assets.
• VAT: The transfer of the economic unit will be not subject to VAT, provided it is an autonomous unit with an organizational structure.
• Transfer Tax (ITP): If the allocation of assets exceeds the partner's share, taxation for excess allocation will be calculated using the market value.

What this means for you

If you are a partner or manager of a civil company with a commercial purpose, dissolution is not merely an accounting process. The valuation of assets (such as inventory, furniture, or real estate) cannot be carried out exclusively based on their book or accounting value if it differs from what the market would pay for them. The administration will require the recognition of the capital gain implicit in the delivery of those assets to the partners.

What should be done

In a dissolution process, it is necessary to perform a technical valuation of the elements to be allocated. Correctly determining the market value is fundamental to avoid adjustments to the Corporate Income Tax (IS) taxable base and to ensure that the treatment of VAT and Transfer Tax (ITP) is appropriate according to the nature of the transfer.