Free cancellations of intra-group credit rights: accounting, legal and tax regime. Analysis of the position on the matter taken by the Spanish Chartered Accountants’ Institute and the Spanish General Directorate of Taxes

Abstract

In the recent past, there has been an increasing trend towards the total or partial free cancellation of intra-group credit rights. The goals of these cancellations may vary but, in general, they are aimed at strengthening the borrower’s equity structure or resolving equity impairment situations.

Given the frequency of the transactions and their significant importance from a practical standpoint (especially within the context of the current economic crisis, in which companies are having increasing difficulty coping with their debts), it is necessary to analyse the accounting and tax treatment of these free cancellations (paying close attention to the interpretation of the matter by the Spanish Chartered Accountants’ Institute and the Spanish General Directorate of Taxes) as well as describe the legal procedure to be used to carry them out.

The authors pursue those goals in this paper.