"IBERDROLA RETRIBUCIÓN FLEXIBLE" TAX TREATMENT
The main tax implications of the "Iberdrola Retribución Flexible" remuneration system are set out below, based on the tax legislation in force in the common territory and on the interpretation given by the Spanish General Tax Authority (Dirección General de Tributos) in response to various binding consultations.
Within the framework of the implementation of the new "Iberdrola Retribución Flexible" system, the Company submitted a binding consultation to the Spanish General Tax Authority (Dirección General de Tributos) regarding the tax treatment applicable to its shareholders in Spain subject to the Personal Income Tax (Impuesto sobre la Renta de las Personas Físicas) ("IRPF"), which was answered by the Dirección General de Tributos on 16 January 2018 with reference number V0042-18.
The treatment described below is taken from the answer to such binding consultation, as well as from the answers to the binding consultations obtained by the Company from the Dirección General de Tributos on 27 April 2010 and 1 October 2010 in connection with the former "Iberdrola Dividendo Flexible" remuneration system and the answer to another binding consultation obtained on 12 May 2020 in connection with the "Iberdrola Retribución Flexible" system.
Non-resident shareholders in Spain, holders of American Depositary Receipts (ADRs) and CREST Depository Interests (CDIs) representing shares of the Company are advised to consult their tax advisors before making a decision in connection with the Capital Increase, including the right to the application of the international treaties for the avoidance of double taxation signed by Spain.
It should be considered that this analysis of the tax treatment (which has been performed on the basis of certain assumptions) does not cover all the possible tax consequences of the different alternatives related to the "Iberdrola Retribución Flexible" system or to the implementation of the Capital Increase and the distribution of the Interim Dividend.
Therefore, it is recommended that shareholders consult their tax advisors on the specific tax effects resulting from the proposed remuneration system, taking into account the particular circumstances of each shareholder or holder of free allocation rights and that they pay attention to any amendments that may be made, both to the law currently applicable and to the rules for interpretation thereof.
The shareholders that choose to receive shares as a consequence of the Capital Increase, pursuant to Spanish tax regulations, will not pay tax for such reason for purposes of the Personal Income Tax (Impuesto sobre la Renta de las Personas Físicas) ("IRPF") or of the Non-Resident Income Tax (Impuesto sobre la Renta de no Residentes) ("IRNR"), when they do not act through a permanent establishment in Spain. The acquisition value for these shareholders of both the new shares received as a consequence of each Capital Increase and the shares from which they derive, will result from distributing the total cost of acquisition among the applicable number of securities, including both existing securities and those issued as paid-up shares. In respect of these shareholders, such paid-up shares will be deemed to have been held for as long as the shares from which they derive. The date of acquisition of the fully paid-up shares to be delivered shall be the date corresponding to the shares from which they originate. Consequently, in the event of a subsequent transfer, the income subject to taxation that is obtained will be calculated by reference to such new value.
Shareholders subject to Corporate Income Tax ("IS") or Non-Resident Income Tax ("IRNR"), with a permanent establishment in Spain, will be taxed from 1 January 2020 in accordance with the accounting regulations contained in the resolution of 5 March 2019 of the ICAC. All of this without prejudice to the rules for determining the taxable base of this tax that may be applicable; in particular, the potential application of the participation exemption regime pursuant to article 21 of Law 27/2014 of 27 November on the Corporate Income Tax ("LIS") or the rule set out in article 17.6 of the LIS for the cases in which the reserve used for the issuance of the paid-up shares in the Capital Increase is the share premium reserve. It is recommended that shareholders who are IS taxpayers or IRNR taxpayers acting through a permanent establishment in Spain consult their tax advisors on the impact of the ICAC Resolution and the referred administrative rulings before making any decision regarding the Capital Increase.
In order to clarify the tax impact that the aforementioned ICAC resolution may have for withholding purposes, the Company submitted a consultation to the Spanish General Tax Authority (DGT) on 10 October 2019. This binding consultation was answered on 12 May 2020 with reference number CV1357-20. This answer to the binding consultation confirms that no withholding or payment on account of taxes will be made by the Company in the delivery of fully paid-up shares in the context of the execution of the Capital Increase.
In the event that the shareholders sell their free allocation rights on the market, the amount obtained for the transfer of such rights on the market will be subject to the following tax treatment:
a) In the IRPF and in the IRNR for non-residents without a permanent establishment in Spain, the amount obtained in transfers of free allocation rights will be deemed to be a financial profit, all without prejudice to the potential application to persons subject to the IRNR without a permanent establishment of international treaties, including the treaties signed by Spain for the avoidance of double taxation and for the prevention of tax evasion in the area of Income Tax and to which they might be entitled, and the exemptions established in the IRNR rules.
In addition, the amount obtained in the transfers of free allocation rights will be subject to the corresponding withholding on account of this tax. The withholding will be applied by the corresponding depositary (and in the absence of depositary by the financial intermediary that has participated in the transfer).
b) For purposes of the IS and the IRNR on non-residents with a permanent establishment in Spain, and to the extent that a complete commercial cycle is closed, the tax will be paid pursuant to applicable accounting regulations and, if applicable, pursuant to the special regimes of the aforementioned taxes. All of the foregoing is without prejudice to the rules determining the tax basis that may apply in these taxes.
If the shareholders choose to receive the Supplementary Dividend, the amount obtained will be covered by the tax regime for results arising from equity participations (such as dividends), and will therefore be subject to the corresponding withholding and taxation in Spain.