Taxation of the return of contributions through the transfer of real estate

The Dirección General de Tributos (DGT) has issued a relevant ruling regarding the tax treatment under Personal Income Tax (IRPF) when the return of a partner's contributions is not made in cash, but through the transfer of real estate.

What the DGT has ruled

The body establishes that the normal market value of the received real estate must be used to reduce the acquisition value of the partner's shares, until said acquisition value is zeroed out. In this scenario, the DGT determines the following:

• If the value of the property exceeds the acquisition value: The resulting excess must be taxed as investment income.
• If the return comes from undistributed profits: The entire amount received by the partner will be taxed as investment income.
• In non-listed securities: The income will be limited to the positive difference between the value of the equity and the acquisition value of the shares.

What it means for you

For a partner participating in this type of operation, receiving a physical asset instead of liquidity alters the nature of the tax transaction. It is not simply a recovery of capital; rather, the valuation of the property may generate an additional tax obligation in the form of investment income. It is fundamental to distinguish whether the return is made using own funds or with profits that have not been previously distributed, as this conditions the taxable base.

What should be done

In an operation of this nature, it is necessary to perform a precise calculation of the market value of the property and compare it with the book value and the acquisition value of the shares. Correctly determining whether an excess exists that must be taxed as investment income is key to avoiding contingencies with the Tax Administration. It is recommended to assess each particular situation to determine the exact impact on the income tax return.