Legal

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For companies subject to common regulations there are two specific annexes:

  1. Form FJD. Form for additional information on adjustments and deductions. It must be completed when the amount recorded in adjustments Other Adjustments to the profit and loss account result (box 414) is greater than 50,000 euros and/or when the amount of the following deductions generated in the fiscal year is equal to or greater than 50,000 euros:
  • Deduction for reinvestment of extraordinary income for the year, article 42 of the LIS.
  • Deduction for investments for environmental protection.
  • Deduction of research and development and technological innovation expenses.
  • Deduction for exporting companies.
  1. BSS Form. Form for Social Security rebates. In those cases in which, in addition to the deduction under article 35 TRLIS, the rebate on the Social Security contribution may have been applied.

Companies subject to the foral regulations of any of the three foral territories, together with the filing of Form 200, must attach the documentation accrediting the deductions generated.

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Ordinary shareholders' meetings are usually held during the month of June to approve the accounts and the distribution of the previous year's results. It is convenient to review some aspects related to the call of these meetings, in order to avoid conflicts.

The matters to be discussed by the Board are not normally decided within the Board, but have been previously fixed.

This is so, inasmuch as the partners or shareholders must know sufficiently in advance the aspects to be deliberated upon in order to be able to participate in the deliberation with sufficient knowledge.

This requirement is expressly established in Article 172 of the Capital Companies Act and is instrumented through the "agenda", which is a list of the matters to be discussed at a Meeting and which is sent in advance by the person convening the Meeting to those who must participate in it.

The agenda therefore defines the deliberative scope of the General Meeting, so that the general rule is that the General Meeting cannot validly adopt resolutions on matters that are not included in the agenda.

The agenda is an essential tool to enforce the shareholders' right to information regulated in Article 197 of the Capital Companies Act, understood as the right of the shareholder to request in writing up to the seventh day prior to the date scheduled for the Meeting or verbally during the Meeting (if this cannot be done at that time, the shareholder must be informed within seven days after the Meeting is held), the reports or clarifications they deem necessary regarding the matters included in the agenda.

Said power or right of the shareholder finds a correlative obligation on the part of the administrators to provide the information, unless such information is unnecessary for the protection of the rights of the shareholder, or there are objective reasons to consider that it could be used for purposes unrelated to the company or its publicity would be detrimental to the company or to the group to which it belongs.

On the other hand, information is necessary in order to have adequate knowledge of the matters to be discussed at the General Meeting and to be able to adopt a duly grounded decision, hence the importance of the agenda for the efficient operation of the Meeting.

The content of the Meeting deals with aspects related to the future of the company, i.e., it must be of a social nature, either in what affects the purely internal or corporate order, or its external relations with third parties.

Last but not least, the General Meeting decides on matters within its own competence. The principle of competence is nowadays configured as an element delimiting the scope of action of each necessary body of the corporate entity. However, despite its importance, the legislator has not been very precise in defining the competences attributed to each of the corporate bodies, which raises important problems when establishing these competences, problems that are dealt with in the following section.

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Valuation of the transfer for valuable consideration of securities not admitted to trading in companies that have been operating for less than 3 years.

The Central Economic-Administrative Court, in a Resolution dated April 26, 2022, resolves in an extraordinary appeal for the unification of criteria, which occurs in cases in which the company has been operating for less than three years in relation to the valuation of the transfer for valuable consideration of securities not admitted to trading.

In the case at hand, the Administration understands that the fact that art. 37.1.b) of Law 35/2006 (Personal Income Tax Law) does not foresee what happens in cases where the company has been operating for less than three years leads to the interpretation made by the Inspection: to try to approximate the value of the investment with the data available. This approximation is equally valid and significant regardless of the number of years the company has been operating.

Consider that the rule establishes a maximum of results to be considered, three, but not a minimum. To totally ignore this second rule is tantamount to not applying it. In this sense, it can be understood that it is also significant that the rule has not expressly regulated this case, clearly indicating that the value of the shareholding in such a case can only be determined by the value of the net equity. Thus, in the absence of a specific regulation, it is understood that the interpretation made by the Inspectorate is in line with the rule, by virtue of which the results available to us -in this case two years- are taken and averaged by the number of years for which we have information -in this case two years-.

Well, art. 37 of Law 35/2006 (Personal Income Tax Law) contains the "specific valuation rules" for "capital gains and losses"; one of which is the one we are dealing with here -art. 37.1.b)-, specifically, if for the purpose of quantifying the transfer value by capitalization at 20% of the average of the results of the last three financial years closed prior to the date of accrual of the tax, even when the company has not been operating for more than three years, and therefore only has the results of the last two financial years -or of the last financial year-, it will be taken into consideration, and said valuation will be made on the basis of the data available.

In the specific case we are dealing with here, the market value of the non-negotiated securities transferred is the one that rules, so that if it is proven that the amount effectively paid for them is equal to or higher than that which would have been agreed upon by independent parties under normal market conditions, that will be the transfer value to be taken into account, without the need for any other consideration.

But it may happen, and in practice it is most frequent, that this proof of the market value of the securities transferred cannot be obtained; well, when this happens, the law establishes two objective formulas with which to determine the value of the securities transferred: (I) one that is based on the equity value that may be behind such securities, and (II) another based on the profitability that the entity whose securities are the object of transfer has, and a forecast (III), since it orders that from the results of those two formulas the higher of the two must be taken. These two calculation formulas operate on the basis of the accounting figures of the entity whose securities are to be valued, since they are the ones being transferred.

Having focused the matter, the Court understands that what the Director intends to do is to depart from the literal wording of one of these special rules, a wording that is clear to this Court: "The result of capitalizing at the rate of 20 percent the average of the results of the three fiscal years closed prior to the date of accrual of the Tax".

For the Court, the text of the Law is clear and is the result of the legislator's decision that the flattening of the possible variability of the results whose capitalization is what will determine the value of the securities concerned, must be carried out in a certain way; and that is, and this is expressly included in the legal calculation formula established in art. 37.1b) of Law 35/2006 (Personal Income Tax Law), considering "the results of the three corporate years closed prior to the date of accrual of the Tax". Therefore, if it cannot be applied in accordance with the literal meaning of article 37.1.b) because, once the investee company has been incorporated in the first or second fiscal year closed prior to the date of accrual of the tax, the results of the three fiscal years closed prior to this date are not available, the calculation formula based on the income obtained by the entity is inapplicable, and the valuation must be based solely and exclusively on the result of the other formula, that which takes into account the net worth.

The regulation does not state that the two mechanisms must come into play in all cases, establishing a maximum number of years to be considered. Nor does the fact that in these cases one of the mechanisms does not operate, as the Administration considers, limit the functionality of the rule. The legislator simply considers that the term of three fiscal years is adequate to consider, with the appropriate time projection, that this mechanism is efficient, expressly establishing this measure of three fiscal years.

This being so, when the literal nature of what is in question is clear, the Court understands that the Administration's claim that this clause can be applied with an interpretation that departs from its literal nature should not be accepted; an interpretation that, on the other hand, and due to the operation of the provisions of art. 37.1.b) Law 35/2006 (Personal Income Tax Law), would never operate in favor of the taxpayer, since it would be detrimental to him -when the capitalization value for the two years exceeds the value of the net worth- or it would be indifferent to him -when the capitalization value for the two years is lower than the value of the net worth-.

Finally, a clarification must be made:

The aforementioned conclusion applies to cases in which, as in the case contemplated by the challenged TEAR decision, since the investee company was incorporated in the first or second fiscal year closed prior to the date of accrual of the tax, at the latter date the results of "the three previously closed fiscal years" are not available - there are only one or two previously closed fiscal years -.

A different case is that in which the investee company has been inactive in one or more of the three fiscal years closed prior to the date of accrual of the tax and has not obtained a loss or profit in said fiscal year/s. In this case, the capitalization rule would be applied, taking the result of the fiscal year or years in which it was inactive as nil and then averaging by three. In this case, the capitalization rule would be applicable, taking as null result the result of the year or years in which it had been inactive and then averaging by three.

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Article 52 a) of the Workers' Statute provides that the employment contract may be terminated due to the employee's known or supervening inability to work after he/she has been placed in the company, with the right to receive a severance payment of 20 days' salary per year worked.

If an employee is declared "unfit" for his or her job, the company must seek an adaptation of tasks or relocation of the employee. Otherwise, or under certain circumstances, the employment contract may be terminated.

The concept of ineptitude refers to an inability or lack of professional faculties of the worker, either due to a lack of preparation or updating of knowledge, or due to deterioration or loss of work resources, perception, dexterity, lack of concentration, speed, etc.

In the event that the incapacity is due to a deterioration or loss of physical or mental conditions that prevent the worker from performing the tasks of the job, it must be of a certain entity and of a permanent nature. This is the case when, for example, as a result of an accident at work, the worker is practically unable to perform any of the main tasks of his profession.

Normally in these cases the worker - after one or more periods of medical leave - is declared to have a total or absolute permanent disability (PI) and is therefore entitled to the corresponding Social Security benefit and the employment contract is terminated.

However, there are cases in which, despite the fact that the worker suffers limitations that may significantly affect his professional capacity, the INSS considers that these are not sufficient to declare him to be affected by a PI, and therefore the benefit is not recognized and the worker must return to the company at the end of the medical leave.

In these cases, if the company considers that the worker does not meet the physical or mental conditions to provide services and decides to terminate the contract, it may do so using the cause set forth in art. 52 a) of the Labor Code: supervening unfitness.

The burden of proof of such unfitness lies with the employer, who, in order to prove the physical and/or mental circumstances of the worker, usually uses reports issued by medical services that, after examining the affected person, determine whether he/she is fit to provide services.

Well, a recent ruling issued by the Supreme Court in unification of doctrine has established that a medical report declaring the worker unfit is not in itself sufficient to prove the supervening unfitness, declaring the dismissal for such cause as unjustified.

 

THE CASE IN QUESTION

A construction worker applies to the INSS for permanent disability after several medical leaves due to a lumbar and sacroiliac degenerative pathology. The INSS denies the IP benefit.

For its part, the company, before the employee returns to work, requests a medical report from its external prevention service.

The external prevention service declares the worker unfit to provide services, although in its report it does not explain the limitations affecting the worker, nor their influence on the performance of the functions of the job (foreman).

The company informs the employee of his objective dismissal due to supervening ineptitude.

Although the letter of dismissal detailed the functions of the employee's position as site foreman, it did not identify his limitations, nor did it justify the reasons for which it was understood that due to these limitations, he was unable to perform the functions of a site foreman.

The SC ruled in unification of doctrine and considered that the termination of the employment contract was an unfair dismissal since it was based exclusively on the report of the prevention service; however, the report did not identify the functional limitations of the employee, nor did it specify in what way they prevented him from performing the listed functions, limiting itself to stating that they affected his ability to drive, but without explaining the reasons for this limitation.

This pronouncement does not imply that the medical reports are deprived of their evidentiary value in order to prove the cause of termination of the contract due to supervening unfitness, but it is necessary that their content be adjusted to that established by the High Court.

Therefore, in order for the medical reports to prove the existence of such supervening unfitness -especially when the INSS has ruled out the worker's declaration of IP for the performance of his usual profession- it is not enough to simply state that the worker has lost his aptitude for the performance of the job, because he has been classified as unfit, but it will be necessary to detail the functional limitations of the worker and his affectation for the exercise of the functions of the job.

 

Important data:

The company is obliged to demonstrate the worker's incapacity objectively and to explore adaptation and relocation options before proceeding to terminate the contract. 

In the event of dismissal, the employee may file a claim if he/she considers that the company is not acting correctly. 

Both the employee and the company should seek legal advice to know their rights and obligations in this type of situation. 

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In 2011, a right of separation of the shareholder in the event of non-distribution of dividends was introduced in the LSC (except in listed companies), in order to protect the minority shareholder from the reiterated agreement of the majority not to distribute profits, but to transfer them to reserves or leave them pending application.

Its purpose is to prevent the minority shareholder from being trapped in a company that systematically refuses to distribute dividends.

However, this right was temporarily suspended, so that it has been applied in leaps and bounds (from 2-10-2011 to 23-6-2012, and again from 1-1-2017), being suspended again as a consequence of the state of alarm declared by COVID-19, from 14-3-2020 to 31-12-2020 (RDL 8/2020 art.40.8 redacc RDL 25/2020).

For general meetings held as from 30-12-2018 (date of entry into force of the amendment made to LSC art.348 bis by L 11/2018 art.2.six - trans.disp.and final.disp.7ª), and unless otherwise provided in the bylaws, the right of separation is governed by the following terms:

  • The fifth fiscal year must have elapsed since the registration of the company in the RM;
  • the shareholder must have recorded in the minutes his protest against the insufficiency of the recognized dividends;
  • the general meeting did not have to resolve to distribute as a dividend at least 25% of the profits obtained during the previous year that are legally distributable.
  • Profits must have been obtained during the 3 previous fiscal years; and
  • the total dividends distributed during the last 5 years must not be equal to at least 25% of the legally distributable profits recorded during that period.

As a special feature, when the company is obliged to prepare consolidated accounts, then, unless otherwise provided for in the bylaws (clarification added by RDL 7/2021), the same right of separation must be recognized for the shareholder of the controlling company when these two requirements are met:

  • The general meeting of the aforementioned parent company does not resolve to distribute as a dividend at least 25% of the consolidated profits attributed to such parent company for the previous year, provided that they are legally distributable; and
  • consolidated profits attributed to the parent company had been obtained during the previous three fiscal years.

In any case (i.e., whether or not the company consolidates accounts), the period for exercising the right of separation for this reason is one month from the date of the date of the corresponding ordinary general meeting of shareholders.

It must be exercised in writing (LSC art.348.2). For purposes of proof, it is convenient to leave a record of the sending of the corresponding communication to the company (e.g., by means of a bureaufax or notification through a notary).

The right of separation culminates after a process of valuation of the shares or holdings (in the absence of agreement, by an independent expert), and the effective payment to the separate shareholder of the value of its participation, which may imply for the company the reduction of capital or the acquisition of its own shares or holdings (treasury stock) (LSC art.353 s.).