In a recent resolution, the General Directorate of Taxes (DGT) confirms that script dividends are only valid for fulfilling the dividend distribution obligation in the special regime of Listed Companies for Investment in the Real Estate Market (SOCIMI) when they generate income for the shareholder. This means that this mechanism is not valid for meeting this obligation when shareholders are taxpayers of the Personal Income Tax (PIT) or Non-Resident Income Tax (NRIT) without a permanent establishment in Spain.
Among the obligations that entities applying the SOCIMI regime must fulfill is the annual distribution to their shareholders of a percentage of the year’s profit in the form of dividends. Total or partial non-compliance with this distribution obligation results in the loss of the special tax regime.
In situations of cash flow pressure, the DGT had previously validated in several binding resolutions the possibility for SOCIMIs to comply with this distribution obligation without the need for cash outflow, provided that income is produced (and recorded) at the shareholder level.
Thus, in resolution V4461-16, of October 17, 2016, the DGT considered this dividend distribution requirement fulfilled in a case where, once the distribution was agreed, the shareholder formalized a loan to the company for the amount of the dividend, so that the cash remained in the SOCIMI. The same conclusion was reached in resolution V0003-15 of January 2, 2015, where the DGT analyzed whether it was possible to agree on the distribution of profits and, immediately afterwards, carry out a capital increase (or an increase in equity charged to a shareholder contributions account), with the shareholder subscribing to this increase through the contribution of the credit derived from said distribution.
However, in a new resolution (V1576-24, of June 26, 2024), it appears that the DGT is limiting the fulfillment of this obligation when it is done through script dividends, for a case where the SOCIMI shareholders are PIT taxpayers and the dividend is materialized through the delivery of bonus shares in the framework of a capital increase.
The DGT concludes (based on its previous resolutions V2312-18 and V2468-20, of August 7, 2018, and July 20, 2020, respectively) that, to the extent that the delivery of fully paid-up shares to shareholders does not involve obtaining income, but rather a reduction in the acquisition cost, the requirement for its registration as income by the shareholder is not met. Therefore, this mechanism is not valid for fulfilling the distribution obligation required by the regulations. The same conclusion should be reached when the partners are NRIT taxpayers without a permanent establishment, given the reference to the PIT Law for the treatment of this type of income.
The consultation does not address the suitability of script dividends for fulfilling the distribution obligation when shareholders are Corporate Income Tax (CIT) taxpayers or NRIT taxpayers with a permanent establishment.
However, there are previous administrative pronouncements that could lead to a positive response. Specifically, in previous pronouncements referring to Corporate Income Tax (among others, resolutions V1357-20, of May 12, 2020 and V2468-20, of July 20, 2020), the DGT concluded (based on a report requested from ICAC) that, regardless of the option finally chosen by the shareholder (delivery of bonus shares, sale of subscription rights in the market or to the issuing entity), on the date when its distribution is agreed, the shareholder must recognize income (classified as a dividend) as a counterpart to the collection right.
In short, the need for the dividend to be recorded as income by the shareholder may prevent the use of script dividends as a formula to fulfill the dividend distribution obligation in the special tax regime of SOCIMI when the shareholders are PIT or NRIT taxpayers without a permanent establishment; this is not the case for Corporate Income Tax taxpayers or NRIT taxpayers with a permanent establishment, since in this case the dividend is recorded as income in the shareholder.
Therefore, to ensure compliance with the dividend distribution obligation (without jeopardizing the application of the special SOCIMI regime), it will be necessary to address this disparate treatment depending on who the entity’s shareholders are.
