Companies must transfer risks and benefits to apply the exemption for the transfer of shares

The application of the exemption provided for in Article 21.3 of the Corporate Income Tax Law (LIS) for the transfer of shares in other entities requires a precise analysis of the moment when said operation takes place. The signing of a contract is not enough; the key lies in the effective transfer of economic ownership.

What the DGT has resolved

The Directorate General of Taxes (DGT) has determined that, to qualify for the exemption, the company must meet the requirements of participation (exceeding 5 percent) and holding (for more than one year) on the exact date of the transfer. Following the accounting criteria of the Institute of Accounting and Auditing of Accounts (ICAC), the transfer is understood to have occurred at the moment the financial asset is derecognized from the accounts.

This accounting milestone occurs when the risks and benefits associated with the participation have been substantially transferred. In this sense, the authority clarifies that if a resolutory condition exists, it will only be considered a collection guarantee if it does not alter the transfer of risks and benefits; if so, the transfer will be understood to have occurred from the start of the operation.

What it means for you

If your company plans to transfer shares in other entities to benefit from the Corporate Income Tax (IS) exemption, the determining factor will not only be the formal agreement but the economic reality of the operation. The tax administration will monitor that the derecognition of the asset coincides with the moment the company ceases to assume the risks and receive the benefits of the investee entity.

This implies that the structure of the operation and the guarantee clauses must be aligned with the moment of transfer to prevent the Administration from considering that the holding requirements were not met on the correct date.

What should be done

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

• Verify that the derecognition of the financial asset takes place at the moment the risks and benefits are effectively transferred.
• Ensure that, on that derecognition date, both the minimum participation percentage and the holding period required by the LIS are met.
• Analyze the nature of any resolutory condition to confirm that it does not prevent the transfer from being considered as having occurred from the start.