Under the title Deduction for reinvestment of extraordinary profits, the article 42 of TRLIS facilitates the renewal of certain assets by offering substantial tax advantage provided that the total amount obtained is reinvested transmission.
1.- The total tax deduction.
This tax benefit is specified in the deduction on the full amount of a certain percentage of the income obtained in the transfer of certain assets and incorporated into the tax base, determined the percentage of the deduction based on the tax rate at which tribute the tax base:
- Tax at the standard rate (35%): The deduction will be 20%
- Taxation at the rate of 25%: The deduction will be 10%
- Taxation at the rate of 20%: The deduction will be 5%
- Taxation at the rate of 40%: The deduction will be 25%
It is indispensable for the implementation of that deduction requirement that positive income obtained in the onerous transfer are reinvested in certain assets. Both the assets in which transmission, as they should be subject to reinvestment, are taxed by law.
In no case shall apply the deduction limits provided for in Article 114 TRLIS.
2.- transmitted assets
The transmitted, capable of generating income forming the basis of the deduction provided in this article, assets are:
The property, plant and equipment and intangible assets, which had possessed at least one year prior to transmission.
securities representing equity or equity of all kinds of entities that grant a share not less than 5% of its share capital, and that they had possessed at least one year before the date of transmission .A the purpose of calculating the time of possession, it is understood that the transmitted values have been the oldest (securities not confer an interest in the share capital excepted). The computation of the interest transferred will refer to the tax period.
3.- assets in which the rollover.
The assets in which to reinvest the proceeds in the transmission that generates income subject to deduction, are as follows:
The property, plant and equipment and intangible for economic activities.
Representative values of the equity or equity of all kinds of entities that grant a share not less than 5% of the share capital of those (securities not confer an interest in the share capital and representative Excepted participation in the capital or equity of residents in countries or states as a tax haven) territories entities.
|DGT-binding 26 / 06 / 2006 (V1225 / 2006): An entity whose business is real estate development will relay certain properties for lease for more than three years and are part of its tangible assets, reinvesting the income earned in the construction of two buildings that incorporate plant and equipment> > positive income earned in the onerous transfer of such property may benefit from the deduction of the full amount, provided that the date of expiry of the deadline for making reinvestment properties have been made available to the company and are operational.
DGT-binding 21 / 06 / 2006 (V1203 / 2006): An entity whose business is real estate development and rental of industrial premises will transmit an urban plot which is currently rented and part of tangible fixed assets, reinvesting the income earned in the construction of a building on a plot with as inventories and fixed assets to be affected as the activity of the company >> the positive income earned in the onerous transmission of the sun may benefit from the deduction of the full amount, provided that the date of expiry of the deadline for making reinvestment the property has been made available to the company and is operating.
DGT-binding 05 / 05 / 2006 (V0851 / 2006): An entity of small size will transmit a property purchased in 1999, currently intended for rent and part of tangible fixed assets, reinvesting the income derived from the acquisition of securities representing the share capital of an investment company variable capital (being not less participation to 5% of share capital and the same) >> be applicable only deduction for reinvestment in cases in which the fund invests in shares in the capital of other companies as long as the percentage of indirect participation is at least 5% (not applicable if its assets are invested in other financial instruments).
DGT-binding 18 / 01 / 2006 (V0093 / 2006): An entity whose activity is the management and real estate development will convey land and other property that has owned at least one year prior to transmission, reinvesting the income earned in other fields and / or properties >> To apply the deduction for reinvesting the broadcast you must have, in any case, consideration of fixed assets. If the land is intended for sale or to build on them and subsequent sale, have the status of stocks. On the contrary, if the use thereof is own of the company or is intended to lease, they have the status of plant and equipment.
4.- Time Limit for reinvestment tax credit.
The general term for making reinvestment is between the year before and three years after the date of the provision of the asset transmitted. When the reinvestment has been made before transmission, the deduction will be performed in the tax period corresponding to said transmission is made full quota.
However, the Act provides for certain cases in which this period may be modified and they are:
- Approval by the tax authorities a special reinvestment plan, other than outlined above, proposed by the taxpayer. The procedure for submission and approval of special reinvestment plans is developed in the 39 and 40 articles of Royal Decree 1777 / 2004, 30 of July, Regulation Corporation Tax is approved.
- When you have made in the tax period two or more transmissions of securities representing the equity or equity of all kinds of entities, such period shall be computed from the end of the tax period.
La reinvestment tax credit It will be practiced in the whole amount corresponding to the period with which the rollover takes place, meaning made reinvested:
- In general, on the date on which the provision of assets in which it materializes occur.
- It case of assets which are the subject of finance leases to which the 1 section of the seventh additional provision of 26 / 1988 from 29 July, Act refers on discipline and intervention of credit institutions shall be deemed reinvestment made on the date of conclusion of the contract, for an amount equal to the cash value of the asset or liability. The effects of reinvesting be conditioned, with decisional character, the exercise of the purchase option.
|DGT-binding 14 / 06 / 2006 (V1098 / 2006): An entity shall build some ships for the subsequent transfer of the company, proceeding with the sale of the ships currently where its headquarters is there. The construction will be financed by finance lease and it is estimated that between signing the contract and the provision of new ships will pass over a year >> reinvestment will be deemed made on the date of conclusion of the contract, not the time of the provision of new ships, without prejudice to the effects of reinvestment remain conditional on effective exercise of the purchase option; so the deduction may not be applied if more than one year elapses between signing the contract and the provision of new ships|
5.- Base deduction for reinvestment.
The basis of the deduction is made for the amount of income earned in transmission and has been included in the tax base.
For the sole purpose of calculating this deduction base, the transfer value may not exceed the market value.
They will not form part of the income obtained on the transfer for purposes of calculating the basis of the deduction:
- The amount of provisions relating to equity securities or elements, as the allocations they would have been tax deductible
- The amounts applied to the accelerated depreciation or cost recovery of good tax deductible as provided in Article 115 of this law, to be integrated into the tax base during the transfer of the assets that benefited from these regimes.
- The share of income you have generated the right to practice double taxation.
Inclusion on the basis of deducting the amount of income obtained on the transfer of assets whose acquisition or subsequent use to generate deductible expenses, regardless of the year in which they are incurred, will be incompatible with the deduction of such expenses. The taxpayer may elect to qualify for the reinvestment tax credit and deduction of the above costs.
The deduction for reinvestment of an amount less than the amount obtained in the transmission will entitle the deduction established in this article, the base of the deduction portion of income proportionally corresponding to the amount reinvested.
6.- Maintaining investment.
The assets in which the reinvestment must remain in the assets of the taxpayer (except justified loss):
- Generally for five years
- And for three years in the case of movable property (except life according to the method of amortization applied, is less).
The transfer of assets in which the reinvestment before the deadline mentioned in the preceding paragraph shall determine the loss deduction, unless the amount obtained or net book value, if lower, is subject to reinvestment in the terms established in this article.
7.- formal requirements.
Taxpayers will be recorded in the memory of the amount of the host to the deduction provided for in this article and the date of reinvestment income annual accounts.
The mention shall be made while keeping within investment outlined above is not met.
8.- Reinvestment assumptions corporate groups
Article 75 TRLIS expressly includes the possibility that the group companies apply the deduction for reinvestment of extraordinary profits reinvested can make the society that obtained the extraordinary profit, or other belonging to the tax group.
Reinvestment may materialize in another company acquired the tax group provided that that element is a new element.
The deduction for reinvestment of extraordinary profits will not proceed on the assumption transmissions between entities in the tax group.
|DGT-binding 27 / 02 / 2006 (V0344 / 2006): An entity has sold a local who owned more than one year old and is planted reinvest the income earned on the purchase of a building that belongs to an individual who participates in an entity that in turn participates in the capital the company acquirer >> If the new premises is subject to the economic activity of the entity is understood that there is the economic motivation on investment that allows the deduction provided for in Article 42 (which is especially relevant in the case of transmissions between persons or entities).|
* Amendments made by the 35 / 2006, 28 of November, the Income Tax Physical and partial modification of laws on Corporate Tax, Law on Non-Resident Income and on Capital
Through the Second Final Provision of 35 / 2006 Law rewording Article 42 TRLIS, being applicable for tax periods beginning from 1 January 2007 (in the case of integrated income in the tax base tax periods beginning before 1 2007 January, shall apply Article 42 in the wording given by the 4 / 2004 law, whatever the period in which the deduction is practiced).
The main changes introduced by the 35 / 2006 Act are:
1.- Deduction percentages
Deduction percentages are reduced, keeping different percentages depending on the tax rate at which taxed the tax base:
- Taxation General (32,5 2007 and 30% in% in 2008) Type: The deduction will be 14,5% in 2007, whatever the tax period in which the deduction is practiced, and in 12 2008%
- Taxation at the rate of 25%: The deduction will be 7%
- Taxation at the rate of 20%: The deduction will be 2%
- Taxation at the rate of 35%: The deduction will be 19,5% in 2007, whatever the tax period in which the deduction is practiced, and in 17 2008%
2.- transmitted assets
In the event of transfer of assets belonging to tangible and intangible assets it is required to be used for economic activities that had been in operation at least one year prior to transmission (with the previous wording only requiring that the elements had possessed at least one year prior to transmission).
an exception is included in the event of a transfer of securities representing the equity or equity of all kinds of entities that grant a share not less than 5% of its capital, that does not involve operations of dissolution or liquidation of these entities.
3.- assets in which the rollover
Following binding consultations DGT a qualification for assuming reinvestment in assets to tangible and intangible assets for economic activities is introduced, requiring that the entry into operation of these elements is made within reinvestment.
As regards reinvestment in securities representing equity or equity of all kinds of entities that grant a share not less than 5% of the share capital of those, the following changes are made:
- The computation of the interest acquired will refer to the deadline for making reinvestment.
- These securities may not generate another tax incentive at the level of taxable income or tax payable (will not be considered a tax incentive value adjustments, exemptions that article 21 of this Act refers to, the deductions to avoid double taxation) .
- The deduction for acquisition of equity participation in the equity of non-resident entities in Spanish territory, is incompatible with the deduction provided for in Article 12.5 of this Act.
4.- the transmitted common standards assets and the assets subject to the rollover
The securities representing equity or equity of all kinds of entities that grant a share not less than 5% will not lead to the application of the deduction for reinvestment when:
- Do not confer an interest in the capital or equity.
- They are representative of participation in the capital or equity of entities not resident in Spanish territory whose incomes are not eligible for the exemption to avoid international double taxation established in Article 21 of this Act.
- They are representative of collective financial investment.
- They are representative of entities that are principally engaged in managing a heritage property or real in the terms provided for in article 4.Ocho.Dos 19 / 1991 Act of 6 June, the wealth tax.
- They are representative of entities where more than half of their assets are comprised of assets that do not generate the right to apply the tax credit for reinvestment (eg cash, short-term investments, receivables, inventory, etc.)
5.- Time Limit for reinvestment
Shall be deemed made reinvestment of the assets which are the subject of finance leases (seventh additional provision of 26 / 1988 Law) on the date on which the provision of the asset object of this contract (in writing above is considered reinvestment made "on the date of conclusion of the contract").
6.- Reinvestment assumptions corporate groups
Article 75 TRLIS collected expressly the possibility that the group companies apply the deduction for reinvestment of extraordinary profits reinvested can make the society that obtained the extraordinary profit, or other belonging to the tax group.
While that article 75 of the TRLIS as expressly provided that "The tax credit for reinvestment of extraordinary profits will not proceed on the assumption transmissions between entities in the tax group" in the new wording of Article 42 given by the 35 / 2006 Law introduce the following clarifications:
- shall not be deemed reinvestment made when the acquisition is made by transactions between entities within the same group
- Nor reinvestment will be deemed made when the acquisition is another entity of the same group, except in the case of property, plant new material.
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Marcos Jimenez de Parga