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Controversy with regards to the Exemption in Corporate Transactions

The incorporation, capital increase and the contributions made by the partners that do not involve increase capital and the transfer to Spain of the place of effective management or the registered office of a company when neither one were previously located in a Member State of the European Union were declared exempt according to Royal Decree Law 13/2010, of December 3rd.

Subsequently, through Law 39/2010 of 23rd December, the State Budget for 2011, its Seventh Transitional Provision stated:   

“During the years 2011 and 2012, are exempt from corporate operation mode of the capital increases of all entities that meet the requirements for the application of the tax incentives for small companies, regulated in Chapter XII Title VII of the revised text of the Corporate Income Tax Law, approved by Legislative Royal Decree 4/2004, of March 5.”

Henceforth, there is a contradiction between two rules. One that states the unlimited exemption of the corporate transactions and another that states a period for the exemption for 2011 and 2012.

The contradiction between the two rules is solved resorting to Article 2.2 of the Spanish Civil Code which states that Laws are repealed only by subsequent ones, and to the extent that it is  expressly provided. In this respect the repeal of the first Law that stated the unlimited exemption has not been expressed, and then it cannot be applicable.

However, the article 2.2 of the Spanish Civil Code states that the repeal will have the scope expressly provided and always extend to anything that the new law on the same subject, is incompatible with the previous one. Would the temporary exemption be considered incompatible? However, once the Legislator figure out the mistake and in order to avoid antinomies regulations, the DT 7th of Act 39/2010 has been repealed by the Royal Decree – Law of 23rd December, establishing urgent measures to correct the deficit power sector tariff. Therefore, repeal the temporary exemption for 2011 and 2012.

In conclusion, the capital increases and the above mention corporate transactions, regardless of cash or non-cash nature, are tax exempt. Conversely, during the last weeks of 2012 it surprised me to find at the Notary Public Office certain lawyers and tax advisors that were not duly informed about the error made by the Legislator and advice their clients to make certain corporate transactions before the end of the year in order to apply the exemption.

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