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The right of transfer from an accounting and tax point of view

On some occasion, we have been able to see the sign “It is transferred” placed visibly in the window or shop window of a premises in order to transfer the business to a new owner, although do we know this figure from an accounting and accounting point of view? fiscal?

The right of transfer can be defined as the amount that is paid by a natural or legal person to acquire the status of tenant of a premises where an economic activity was being carried out, in order to be subrogated to the lease contract that already fell on them. the premises itself.

The right of transfer replaces the tenant of the premises who was carrying out an economic activity, with a third party who will transfer all the rights and obligations relating to the lease contract itself.

Advantages of the right of transfer

An important advantage of the right of transfer is that the new tenant benefits from the business created by the previous tenant, from the point of view of the renovations carried out, adaptation of the premises, established clientele, employees, suppliers, etc.  

It must be kept in mind that from the point of view of the owner of the premises, the original tenant must notify his intention to transfer to a third party, since the owner has preference in the event that he wishes to redeem the lease. In the event that this does not occur, the owner will pass on an economic part of that transfer right.

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What are the tax effects of the right of transfer?

In relation to the tax implications that may arise in the transfer of a business, we must keep in mind:

a.-) Value Added Tax (VAT).

In relation to the Value Added Tax, we must keep in mind that there may be different cases that give rise to whether or not they are subject to this tax.

Article 7, in section one, of Law 37/1992, of December 28, on Value Added Tax, establishes that the transfer will be an operation not subject to VAT provided that the “set of physical elements (…) constitute or are capable of constituting an autonomous economic unit.”

Therefore, if the transfer of a business is carried out in its entirety and constitutes an autonomous productive unit, taking into account the tangible material assets as well as the intangible ones, the taxable event of the tax would not be carried out in accordance with the aforementioned article 7 and would be a operation not subject to VAT. The invoice issued will be without VAT.

Now, if the transfer of the business is carried out partially and does not constitute an autonomous economic unit, the operation would not meet the requirements of article 7 and, therefore, it would be an operation subject to and not exempt from VAT, so the invoice It would have to be issued with VAT and the tax accrued accordingly.

This distinction is not trivial since article 4.2, letter b, of the aforementioned law establishes that “transmissions or assignments of use to third parties of all or part of any of the assets or rights that make up the business or professional assets of "taxable subjects, including those carried out on the occasion of the cessation of the exercise of economic activities that determine subjection to the Tax", leaving these operations subject and not exempt.

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Conditions of the General Directorate of Taxes

The General Directorate of Taxes in its Binding Consultation V2368-20 of July 10, 2020 has established that for the conditions of article 7 to be met and, therefore, for the operation to not be subject to VAT, it is necessary that:

“- the transferred elements constitute an autonomous economic unit capable of carrying out a business or professional activity by its own means at the headquarters of the transferor.

– that said economic unit is affected by the development of a business or professional activity.

Therefore, the application of the assumption of non-submission requires that the set of elements transmitted be sufficient to allow the development of an autonomous economic activity at the headquarters of the transferor.

It is necessary, therefore, that all elements related to the activity be transmitted so that the operation is not subject to VAT. If this requirement is not met, VAT will have to be accrued for each item transmitted in accordance with the regulations of this tax.

b) Tax on Personal Income Tax (IRPF).

In relation to this tax, the transfer right will be counted as capital gain, in accordance with the provisions of article 33, and must be taxed between the difference between the acquisition value and the transfer value.

What should we take into account from an accounting point of view?

From an accounting point of view, we must keep in mind the ICAC Resolution on intangible assets and NRV 6 of the General Accounting Plan in relation to counterpart 205.

Regarding amortization, the right of transfer will be amortized taking into account the duration of the lease contract and taking into account any reasonable doubts that may exist in relation to its renewal or not.

It must be taken into account that possible renovations carried out in the leased premises and carried out by the lessee will be accounted for as property, plant and equipment and will be amortized, as will the right of transfer, taking into account the duration of the contract, provided that the economic life of the reforms is not inferior.

In this link you can find a practical example to account for a transfer right.

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