Companies must derecognize assets in their accounts to apply the exemption on income

The application of the exemption on positive income in Corporate Income Tax (IS) requires strict compliance with the temporal and ownership requirements provided for in current regulations. A recent binding ruling from the Directorate General of Taxes (DGT) clarifies the exact moment when the transfer is understood to have occurred for the purposes of said exemption.

What the DGT has ruled

The inquiry focused on determining whether the positive income derived from the transfer of a shareholding in an entity to a related entity could qualify for the exemption under Article 21.3 of the Corporate Income Tax Law (LIS). The requirements for this exemption include holding a stake of more than 5 percent and having maintained such ownership for more than one year.

The DGT has established that the transfer date, necessary to verify whether the holding periods are met, must coincide with the moment the accounting derecognition of the asset occurs in the books of the transferring company. The transfer agreement or the signing of the contract is not enough; rather, the accounting reality of the asset's exit is the determining factor for compliance with the rule.

What this means for you

For companies managing portfolios of holdings or performing divestments, this criterion implies a necessary coordination between the legal acts of transfer and the accounting entries. If the accounting derecognition is not carried out at the appropriate time, the company could lose the right to the exemption on the positive income obtained, which would increase the tax burden of the operation.

This criterion directly affects the planning of divestments in related entities, where the correct accreditation of the holding during the minimum period required by the LIS depends on the synchronization between the legal transfer and the derecognition in the accounting books.

What should be done

In the event of a transfer of shares, it is necessary to:

• Verify that the holding is greater than 5 percent of the investee entity.
• Ensure that the holding of the stake has exceeded the one-year period before the accounting derecognition.
• Guarantee that the accounting derecognition entry of the asset is made in a manner consistent with the date of the legal transfer to avoid discrepancies before the Tax Administration.