Balance sheet regulation under state and Basque charter regulations. Pedro San Jose Belmonte. Attorney at law. Consolidated Group Tax Department. BC Barcelona and Patxi Azpiri Albistegui. Attorney at law. Tax Department. BC Bilbao


The BOE of 21 December 1996 published the statutory rules on balance sheet regulation, in Royal Decree 2607/1996, of 20 December, developing article 5 of Royal Decree-Law 7/1996, of 7 June.

On 15 January 1997, the BOE also published the Order of 8 January 1997, approving the declaration/assessment forms for the single tax on reappraisal which must be paid by Corporate Income Taxpayers (form 208).

The objective of this article is to provide information on the essential aspects of balance sheet regulation for 1996, without going into subjective considerations of whether or not it is of interest to reappraise, since this will depend on each particular case and is basically a question of "doing sums".


Corporate Income Taxpayers who have a personal or a real obligation to pay tax through a permanent establishment located in Spanish territory, Personal Income Taxpayers, with a personal or real obligation to pay tax, and entities under the fiscal transparency regime performing business or professional activities.

Two aspects should be mentioned in this regard: in the case of Corporate Groups, the companies comprising the group may make individual reappraisals and, in the case of natural persons, reappraisals may be carried out by taxpayers performing professional activities.


Reappraisal is limited to tangible fixed assets, as well as assets acquired under the financial leasing regime and plots and land belonging to real estate companies. Reappraisals must cover all assets open to reappraisal and appropriate depreciation.

In order for an asset to be reappraised, it is necessary for it to be effectively in a state of use and not written off for tax purposes, and for the minimum tax depreciation to have been carried out. It is not necessary for reappraised assets to be related to the performance of economic activity (this rule does not apply to taxpayers with a real obligation to pay tax through a permanent establishment, or to natural persons).

The regulation allows fixed assets in the process of manufacture to be reappraised, and with regard to the reappraisal of goods acquired under leasing, this depends upon the call option being exercised.


Reappraisals may only be carried out in relation to assets appearing on the balance sheet forming part of the annual accounts, relating to the first year end after 9 June 1996. In the case of natural persons, reappraisal will be carried out in relation to those assets appearing in the books or registers at 31 December 1996.

Legal entities must perform reappraisal operations within the time period between the date of the year end to which we have referred above and the date on which the deadline ends for approval of annual accounts, which in the case of a tax period coinciding with the calendar year, might be until 30 June 1997. The result of reappraisal operations must be reflected in the balance sheet forming part of the aforementioned annual accounts, which must be approved by the competent corporate body.

Natural persons must perform reappraisal operations between 31 December 1996 and the final day of the period for filing Personal Income Tax declarations for 1996.

For reappraisals to be fully valid, it is compulsory for the Corporate Income Tax Declaration corresponding to the tax period in which the regulated balance sheet is recorded, to be filed within the voluntary declaration period.

Royal Decree 2607/1996 establishes a transitory period to facilitate reappraisal for entities whose tax period does not coincide with the calendar year, provided that a series of circumstances are fulfilled.


Reappraisal rates are applied on the price of acquisition, production or improvement, depending on the year of acquisition, production or improvement, and on any depreciations which are tax deductible, taking into account the year in which they were deducted, and where appropriate, the minimum depreciation. The net amount of accounting restatements resulting from reappraisals are carried over to the Reserve called "Reappraisal of Assets Special Reserve Royal Decree-Law 7/1996, of 7 June" (hereinafter, the Reserve). This Reserve forms part of the own funds of the entity.


Reappraisal rates are applied on the cash value of the asset at the time the agreement is perfected, taking into account the year in which it had occurred, and on the recovered part of the cost of the asset, forming part of the leasing quota, that had been tax deductible, taking into account the years of deduction. Once the call option is exercised, the rates are applied on the tax-deductible depreciation corresponding to the said option, taking into account years of deduction.


Any possible voluntary restatements that had to be made by taxpayers are completely disregarded. The balance in the Reserve is reduced by the total amount of the restatement, with the same having to be done as regards the reserve showing the net increase in value.

Items contained on the first balance sheet closed on or from 31 December 1983

The rates are applied on the value of the goods given on this balance sheet, taking into account its closing date, and on any accrued depreciation on the aforementioned balance sheet that were tax-deductible, taking into account, respectively, the year the balance sheet is closed and the years of depreciation allowances, considering, where appropriate, the minimum depreciation.


The value restated in the operation performed at the time is recognised, as regards the application of rates on the acquisition cost, and on any depreciation carried out, in relation to assets acquired under the scope of the Merger Act, and not with regard to assets owned by the taxpayer before performing the operation.


The rates are applied on the acquisition or production cost for the transferring entity, taking into account the year of acquisition or production, and on the depreciation corresponding to any such acquisition or production cost that were tax deductible both in the transferring and the acquiring entities, taking into account, where appropriate, the minimum depreciation. If they had been accounted for at a value other than the one they held in the transferring entity, the balance of the Reserve must only appear on the balance sheet for the amount of the excess of the new value of the reappraised assets on their book value prior to reappraisal operations. Nevertheless, the single tax of 3 per cent is applied on the total amount in the Reserve, which must be reflected in the annual account report.


The taxpayer may choose between three procedures for determining the external financing rate: a fixed rate of 40 per cent; a "variable" rate determined according to magnitudes while the asset was being held; and a "variable" rate determined according to magnitudes over the year of reappraisal and over the previous five years. In such cases, if the resulting rate is over 0.4, there will be no reduction.


A single tax of 3 per cent must be paid on the credit balance in the Reserve. It is not considered the Corporate Income Tax quota nor the Personal Income Tax quota, but is considered a tax debt. It will not be accounted for as a cost, and nor will it be considered tax-deductible, and shall be charged to the Reserve.


The previous value of reappraised assets will be depreciated, for tax purposes, as was done prior to reappraisal. With regard to the resulting net increase in value of reappraisal operations, it will be depreciated over the tax periods that remain for completing the useful life of the reappraised assets.


As a general rule, the balance in the Reserve will not be available until it is verified and accepted by the Tax Administration, or until the deadline for doing so (three years) has passed.


Once the Reserve has been verified, or if it has not been verified and three years have passed, the balance may be destined towards:

- Writing off negative book losses.

- Increasing the share capital.

- Freely distributable reserves, once ten years have passed.

In order to distribute the balance, whether directly or indirectly, the capital gain must have been made, either through the part of the asset‹s accounting depreciation or through the transfer thereof.


There are many uncertainties arising from an analysis of the rules on reappraisal. By way of example, we shall highlight the following:

  • Concept of "goods that are depreciated for tax purposes".
  • Application of rates in an interrupted year.
  • Calculation of the financing ratio in cases of business restructuring (mergers, spin offs and transfers of branches of activity).
  • Concept of "market value".
  • Reappraisal of assets acquired through operations performed under the scope of Law 29/1991, when the deferral system was waived.


1. Background

At the end of 1996, the Historical Territories of Guipœzcoa and Vizcaya promulgated the rules on balance sheet regulation in various Charter Regulations. It was delayed in Alava until 7 February 1997, the date on which the General Assemblies approved the corresponding Charter Regulation.

2. Advantages

  • There is no tax cost.
  • If no reappraisal is carried out, it shall not be possible to readjust the effect of inflation as regards future transfers of fixed assets (since the Corporate Income Tax Charter Regulations set forth that it shall only be possible to adjust the total sum of monetary depreciation occurring since the last legal authorised reappraisal or since the date on which the asset was acquired, if this were later).
  • Strengthening of future corporate self-financing, owing to the increase in the cost for depreciation and reduction of future Corporate Income Tax quotas.
  • Improvement of the net worth situation of the company by fortifying own funds, which involves setting up a revaluation reserve.
  • An increase in own funds may avoid cases of obligatory reductions in capital owing to losses or situations of legal bankruptcy or dissolution.

An increase in future depreciation facilitates setting up a sufficient replacement fund for assets at the end of their useful life.

3. Disadvantages

  • Negative impact of greater future depreciation in the profit and loss account. This might affect remuneration agreed according to the profit share or dividend policy.
  • Non-distributable nature of the revaluation reserve.
  • Administrative burden for the company: need to include more information in the report, administrative and computer costs, expert reports, possibility that the company is subject to obligatory external auditing.
  • Tax impact on shareholders. In the case of natural persons, it could affect the Personal Income, Wealth and Gift Taxes. In the case of legal entities, it may mean reinvesting portfolio provisions previously made by the shareholder.
  • It represents an obstacle to fulfilling quantitative requirements on the volume of assets demanded for access to the charter deduction of 15% for investments in new fixed assets. Likewise, an alteration in the value of fixed assets may mean losing the special Corporate Income Tax regime for Small and Medium-Sized Businesses.
  • It may alter the proportions of corporate assets and make it enter the fiscal transparency regime.
  • Inspection of reappraisal operations.

4. Principal Characteristics

  • It affects companies subject to Corporate Income Tax charter legislation.
  • It is voluntary, but if carried out, it must be done on the entire assets which meet the conditions for being reappraised.
  • It affects those assets appearing on the balance sheet of 31.12.96. In the case of a year which does not coincide with the calendar year, the balance sheet for the first period concluding within 1997 must be taken.
  • Ratios may be applied in the proportion so desired. However, if this option is chosen, the same ratios chosen for all assets must be applied.
  • It is important to remember that reappraisal may not lead to the market value of a good being exceeded.
  • It is important to mention that goods which are depreciated for accounting purposes may not be reappraised.

5. Reappraisal Procedures

Two procedures are established, one of these obligatory if certain circumstances are present.

A. Simplified Procedure

This applies obligatorily if the assets to be reappraised are in one of the following two situations:

a) Assets that were reappraised under the scope of legal provisions approved after 1 January 1983:

Reappraisable value: net book value resulting from the last reappraisal.

Reappraisable depreciation: those made following the last reappraisal.

b) Assets that were able to be reappraised under the scope of legal provisions approved after 1 January 1983 and which were not reappraised:

Reappraisable value: net book value attributable to the date of the close of the fiscal year in which the last regulation on reappraisal would have been applied.

Reappraisable depreciation: carried out after the date of the close of the period mentioned in the previous paragraph.

General Procedure

This is the procedure to follow with assets to which the simplified procedure does not apply:

Reappraisable value: acquisition or production cost.

Reappraisable depreciation: any depreciations recorded in the accounts, provided that they respond to effective depreciation and meet the minimum depreciation rule.

Mechanism to Follow

In both procedures, the mechanism for determining the capital gain on reappraisal is the same:

a) the reappraisable value is multiplied by the relevant rate.

b) reappraisable depreciations are multiplied, each by the appropriate rate.

c) a) minus b) gives the reappraised net book value.

d) it only remains to obtain the capital gain to be reappraised, using the difference between the reappraised net book value and the net book value of this same asset at 31.12.96, before reappraisal.

6. Depreciation of Reappraised Assets

- It is important to mention that reappraisal does not prolong the useful life of assets which have been reappraised.

- In order to calculate new depreciation, it is necessary to separate or differentiate the reappraised asset value into two parts:

a.) Value of the asset before reappraisal: the same system will be applied as before reappraisal.
b.) Increase in value resulting from reappraisal: it will be depreciated within the remaining periods of its useful life, with the depreciation resulting from this ratio being attributed in each period:

Accounting Asset Depreciation Carried Out In Each Tax Period/Net Book Value Of The Asset Before Reappraisal

7. Nature And Aim Of The Revaluation Reserve

The revaluation reserve is not available until it is verified, whether expressly or tacitly (owing to the recognised period having passed). The period for administrative verification is five years from the date of the close of the regulated balance sheet, although preferential verification may be requested in certain cases.

The reserve has to be directed towards one of the following:

  • Writing off losses.
  • Increasing the share capital and, where appropriate, the amount corresponding to the legal reserve.
  • Non-distributable reserves.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Florentino Carreno on +341 524 7100

For more information on Taxation in Spain enter a text search 'Cuatreacsas Abogados' and 'Business Monitor'.