Recognition of capital losses on shares of companies in insolvency proceedings

The Directorate General of Taxes (DGT) has clarified the tax treatment of capital losses derived from holding shares in entities that are in insolvency proceedings. This criterion is fundamental for shareholders who expect to recognize a decrease in the value of their investment to reduce their tax burden under Personal Income Tax (IRPF).

What the DGT has resolved

The inquiry addresses the possibility of computing a capital loss when the entity in which one holds a stake enters insolvency proceedings. The binding criterion determines that, for the shares of an entity in insolvency to be considered a capital loss pursuant to Article 37.1.e) of the IRPF Law, it is mandatory to first proceed with the dissolution and liquidation of the company.

The Administration establishes that the change in assets is understood to have occurred only in the tax period in which said liquidation is formalized. Therefore, the mere fact that the company enters insolvency proceedings does not automatically generate the right to declare the loss in the shareholder's tax return.

What it means for you

If you are a shareholder in a company undergoing insolvency proceedings, the entity's situation directly conditions the moment when you can recognize the loss on your investment. It is not possible to apply the loss in advance based solely on the insolvency or the insolvency proceedings of the company.

The resulting capital loss, once the liquidation takes place, must be integrated into the savings tax base. This implies that the recognition of the economic impact of the loss is subject to the conclusion of the entity's dissolution and liquidation process.

What you should do

In a situation where the entity in which you participate enters insolvency proceedings, it is necessary to:

• Verify the legal and accounting status of the company to determine if the dissolution process has begun.
• Check that the liquidation has been effectively completed in order to apply the capital loss criterion.
• Assess each particular situation with a specialist, as the timing of the liquidation will determine the fiscal year in which the tax benefit can be applied.