Companies must pay tax on the difference between market value and tax value in capital reductions

In capital reduction processes involving the return of contributions, the manner in which assets are delivered to shareholders determines the entity's tax burden. It is not sufficient to use the book or tax value of the assets if they differ from their actual market value.

What the DGT has ruled

The Dirección General de Tributos (DGT) has specified that, when a company carries out a capital reduction and the return of contributions is made through the delivery of assets other than cash, such assets must be valued at their market value.

Consequently, the transferring entity is obliged to include in its tax base the difference between the market value of the delivered assets and their tax value. This recognition of the gain must take place in the same tax period in which the effective delivery of the asset occurs.

What this means for you

If your company is considering a restructuring that involves the delivery of real estate, machinery, or other assets to shareholders as part of a capital return, you must take into account that the tax impact will not be limited to the book value. Regulations require that the operation reflects the economic reality of the asset.

For the company, this implies an increase in the tax base of Corporate Income Tax (IS) if the market value is higher than the tax value of the asset. For the shareholders, the receipt of these assets alters their equity position, as they receive an asset that has been valued according to market criteria.

What should be done

In an operation of this nature, it is necessary to:

• Perform a technical and updated valuation of the market value of the assets intended for delivery.
• Calculate in advance the tax impact that the difference between the market value and the tax value will have on the company's tax base.
• Verify compliance with the Law on Corporate Income Tax (LIS) to ensure that the recognition of the gain is carried out in the correct fiscal year.

Given the complexity of transactions between shareholders and the company, it is fundamental to assess each case individually to avoid contingencies with the Tax Administration.