Investments in US dollar-denominated shares trigger two moments of taxation

Managing investment portfolios in international markets involves additional complexity when assets are not traded in euros. The Dirección General de Tributos (DGT) has clarified the tax treatment applicable to transactions that combine the buying and selling of shares denominated in dollars with the subsequent conversion of said currency into the national currency.

What the DGT has ruled

The ruling establishes that the calculation of the capital gain or loss from the transfer of shares must be carried out following a two-step process. First, the result of the transaction is determined using the acquisition and transfer values expressed in the original currency of the shares (in this case, dollars). To obtain the value in euros, the exchange rate in effect on the date of each transaction must be applied.

Within this calculation, the regulations allow for the inclusion of buy and sell commissions as expenses inherent to the transaction, which directly affects the acquisition and transfer values. However, the DGT clarifies that portfolio maintenance expenses cannot be included in this calculation. Finally, the resulting difference from the exchange of foreign currency to euros constitutes a separate capital gain or loss, which is recognized at the moment the actual conversion of the currency takes place.

What this means for you

If you are a tax resident in Spain managing investments in foreign accounts or markets denominated in foreign currencies, you must understand that there is no single taxable result. Taxation is divided into:

• Gain or loss from the transfer of securities: Calculated in the currency of the share and converted to euros at the exchange rate on the date of the transaction.
• Gain or loss from the exchange rate: Generated by the fluctuation of the currency at the moment of converting dollars to euros.

This scenario implies that an investment can report a gain from the buying and selling of the share, but a loss from the currency conversion, or vice versa.

What you should do

It is necessary to maintain rigorous control of the exchange rates applicable on the exact dates of each transaction to avoid errors in the settlement of Personal Income Tax (IRPF). Since the regulations of Law 35/2006 require precision in determining acquisition and transfer values, it is recommended to assess the situation of each investment portfolio to ensure that deductible expenses and applied exchange rates comply with the tax authority's criteria.