Companies must recognize the value difference in capital reductions involving the transfer of assets

A recent binding ruling from the Dirección General de Tributos (DGT) has defined the tax treatment applicable to capital reduction operations through the transfer of assets, specifically in the case of the segregation of a rural estate in favor of a partner who is a natural person.

What the DGT has ruled

The administration has determined that, for Corporate Income Tax (IS), the entity performing the operation must include in its taxable base the difference between the market value of the transferred asset and its tax value. This criterion is based on the regulations of the Corporate Income Tax Law (LIS).

On the other hand, regarding the partner's situation, since the operation affects all of her holdings, the rule of separation of partners must be applied. This implies that the natural person must compute as a capital gain or loss the difference between the market value of the property received and the acquisition value of the shares she held in the company.

Regarding the Transfer Tax and Documented Legal Acts Tax (ITPAJD), the DGT points out that the segregation is taxed as documented legal acts and the capital reduction as corporate operations.

What this means for you

If your company is considering a capital reduction that does not consist of a cash refund, but rather the transfer of assets such as real estate or estates, the tax burden will not be limited solely to the partner. The entity will have to recognize a tax benefit if the market value of the asset is higher than its book or tax value at the time of the transfer.

For the partner, the operation is analyzed through the lens of the transfer of her holdings. The market value of the asset received will determine the amount of the capital gain or loss that must be declared in her Personal Income Tax (LIRPF).

What should be done

Given the complexity of these operations and the coexistence of different taxes (IS, LIRPF, and ITPAJD), it is necessary to assess each case individually. The correct market valuation of the segregated assets is a determining factor for calculating the taxable bases for both the company and the partner.