Dividend taxation: legal ownership prevails over free transfer

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the attribution of income from movable capital in Personal Income Tax (IRPF). The inquiry focuses on determining who must include distributed dividends in their tax base when there is a free transfer of such amounts to another person.

What the DGT has ruled

The administration has clarified that dividends constitute income from movable capital that must be included in the savings tax base. According to Article 11.3 of the IRPF Law, this income is attributed to taxpayers who hold ownership of the assets, following the rules of legal ownership.

Consequently, the DGT determines that dividends are attributed to the owner of the company shares. This criterion remains unchanged even in cases where the owning partner decides to transfer the received amount for free to another partner or to a third party.

What this means for you

This ruling has a direct impact on partners of companies who intend to modify the distribution of profits through dividend transfer agreements. If a partner is the legal owner of the shares, the tax obligation arises in their income tax return, regardless of what happens to the money once received.

Current regulations do not allow the intention to transfer profits to alter the tax ownership of the income. Therefore, the partner receiving the free transfer cannot declare those dividends as their own, as tax attribution is governed by the ownership of the shares and not by the final destination of the cash.

What should be done

When intending to distribute profits in a manner different from the formal ownership percentage, it is necessary to consider the tax implications of legal ownership. The transfer of dividends does not modify the tax base of the original partner. It is recommended to assess the particular situation of each corporate structure and the nature of the shares to avoid discrepancies with the Tax Administration.