Law 8/2012 of 30 October on the Sanitization and Sale of Real Estate Assets of the Financial Sector

OFFICIAL STATE GAZETTE
No. 262 Wednesday, October 31, 2012 Sec. I. Page 76624
I. GENERAL PROVISIONS
HEAD OF STATE
13487 Law 8/2012, of October 30, on the sanitization and sale of real estate assets of the financial sector.
JUAN CARLOS I
KING OF SPAIN
To all who see and understand this.
Know: That the General Courts have approved and I come to sanction the following law.
PRELIMINARY STATEMENT
Noting the impact that the deterioration of assets linked to the real estate sector has on the solidity of our financial system, Royal Decree-Law 2/2012, of February 3, on the sanitization of the financial sector, was issued with the aim of adopting urgent measures to achieve the sanitization of the balance sheets of credit institutions, negatively affected by said deterioration.
The requirements established by Royal Decree-Law 2/2012, of February 3, oriented towards covering the deterioration in bank balances caused by problematic assets linked to real estate activity, have represented a considerable effort for credit institutions in the current fiscal year 2012, extendable to 2013 for those undertaking structural organizational modifications.
The strengthening measures for provisions and capital established in the aforementioned Royal Decree-Law were favorably received by both market participants and international financial institutions.
Therefore, in the same line marked by Royal Decree-Law 2/2012, of February 3, to dispel the uncertainties that have been hindering the normalization of the Spanish financial sector and the recovery of its function as a channel for savings to the real economy, Royal Decree-Law 18/2012, of May 11, on the sanitization and sale of real estate assets of the financial sector, was approved, validated by the Congress of Deputies on May 31, 2012, in accordance with Article 86 of the Spanish Constitution, simultaneously agreeing its processing as a Bill that has become this Law, whose Chapter I contemplates additional coverage requirements to those established in Royal Decree-Law 2/2012, for the deterioration of financings linked to real estate activity classified as normal. These new requirements are established, similarly to the previous ones, only once, differentiated according to the various classes of financings. The methodology employed respects the criterion collected in international accounting standards insofar as, regarding the assets to which it is directed, it seeks to approximate the lower market expectations reflected in the financial statements of the entities, evidenced by market capitalizations significantly lower than their book values, thus contemplating the recognition of an incurred loss if the recoverable amount of an asset is lower than its book value, introducing a mere presumption of minimum loss to consider. On the other hand, the precise provisions are established to ensure compliance with the new requirements in coherence with the deadlines established in Royal Decree-Law 2/2012, of February 3, for which, as already provided by Royal Decree-Law 18/2012, of May 11, the deadline of June 11, 2012 is maintained for credit institutions to present to the Bank of Spain a plan detailing the measures they intend to adopt for said compliance. cve: BOE-A-2012-13487

OFFICIAL STATE GAZETTE
No. 262 Wednesday, October 31, 2012 Sec. I. Page 76625 Likewise, in coherence with what is provided in Royal Decree-Law 2/2012, of February 3, a mechanism for flexibility of the compliance deadline for the new provision requirements has been established for those entities that will undertake integration processes, which will have a period of twelve months from the authorization of the respective process. In order to avoid inefficiencies in the presentation of integration process projects, by virtue of which they might arise from the new requirements established in Royal Decree-Law 18/2012, of May 11, the deadline for presentation of said projects provided in Royal Decree-Law 2/2012 was extended until June 30, 2012, an aspect that is reflected now in the Final Provision fourth of this Law. In the event that credit institutions, to comply with the new risk coverage requirements for real estate, deteriorate their solvency to such an extent that their main capital or own resources result in deficit, they must foresee in their compliance plan the alternative measures that guarantee what is provided in this Law. In particular, if the Bank of Spain considers it so based on the economic-financial situation of the entities, these will be obliged to request public financial support through the intervention of the Bank Restructuring Orderly Resolution Fund (FROB), an institution that may inject resources into entities through the acquisition of either ordinary capital or other instruments convertible into capital. In order to isolate and provide an outlet in the market for assets whose integration into the balance sheets of entities is hampering the recovery of credit, Chapter II provides for the constitution of capital companies to which credit institutions must contribute all real estate adjudicated or received in payment of debts related to land for real estate development and with constructions or real estate developments. For this, it is necessary to guarantee that their valuation results in adjustment to market reality as well as the professionalization of the management of the cited companies. Likewise, the Law establishes the necessary rules to guarantee the fiscal neutrality of the operations carried out in the constitution of the companies for asset management. In order to stimulate the sale of real estate assets, in relation to the Corporate Tax, Personal Income Tax, and Non-Resident Income Tax, a partial exemption of the income derived from the transmission of urban real estate assets acquired from the entry into force of Royal Decree-Law 18/2012, of May 11, May 12, 2012, and until December 31, 2012, is introduced when certain requirements are met. Finally, notarial and registry tariffs are moderated that will be applicable in cases of transfers of financial or real estate assets as a consequence of sanitization and restructuring operations of financial entities. In short, the measures provided in this Law and, specifically, the additional
provision requirements, serve to reinforce the solvency of the financial sector and sanitize its balances. This will strengthen credibility in our financial system in the current context, which in turn will contribute to financial stability not only in the sector, but of the entire national economy.
CHAPTER I
Sanitization of credit institutions
Article 1. Measures for the sanitization of the balance sheets of credit institutions.

1. On the outstanding balance as of December 31, 2011, of financings related to land for real estate development and with constructions or real estate developments, corresponding to the activity in Spain of credit institutions and consolidatable groups of credit institutions, to which Article 1.2 of Royal Decree-Law 2/2012, of February 3, on the sanitization of the financial sector refers, the coverages indicated in the annex of this Law will be constituted, only once, with a character additional to those established in that norm. The amount of said coverages may be used in the manner provided in Article 1.2 of Royal Decree-Law 2/2012, of February 3.
2. If as of December 31, 2013, the amount of said coverages has not been applied in its entirety to the aforementioned purpose, the remaining balance of them will be, if applicable, assigned to the coverages of those assets determined by the Bank of Spain.
   Article 2. Compliance Plan.
3. Credit institutions and consolidatable groups of credit institutions must comply with what is provided in Article 1 of this Law before December 31, 2012.
   Credit institutions that, during the fiscal year 2012, carry out integration processes that imply a significant transformation of entities that do not belong to the same group will have twelve months from when they obtain the requisite authorization to comply with what is provided in Article 1 of this Law, provided that the integration is carried out through operations that imply structural modifications or acquisition of entities majority-owned by the Bank Restructuring Orderly Resolution Fund (FROB) or in which it has been designated provisional administrator, include measures tending to improve their corporate governance, incorporate a plan for divestment of assets related to real estate risks, as well as commitments to increase credit to families and small and medium-sized enterprises.
4. For this, credit institutions and consolidatable groups of credit institutions must have presented to the Bank of Spain before June 11, 2012, a plan in which they will detail the measures they intend to adopt to comply with what is provided in Article 1 of this Law, including a program for divestment of assets related to real estate risks and an execution schedule for the same.
   When it results from the plan that the entity or the consolidatable group of credit institutions, once the provisions required in Article 1 of this Law are constituted, may incur a deficit of main capital or computable own resources, they must include in said plan the measures they intend to undertake to not incur in said deficit and whose execution deadline cannot be superior to five months.
5. Without prejudice to the administrative responsibility in which the entity and those holding administration and direction positions in it may incur, the serious non-compliance of any of the measures included in the plan approved by the Bank of Spain, which puts in danger the achievement of the plan's objectives, may determine the application of what is provided in Royal Decree-Law 24/2012, of August 31, when the entity in question is in any of the situations provided in Chapter IV of said norm.
   CHAPTER II
   Companies for asset management
   Article 3. Constitution and legal regime.
6. The assets adjudicated or received in payment of debts referred to in Article 1.1 of Royal Decree-Law 2/2012, of February 3, must be contributed by credit institutions to a public limited company under the terms established in this Chapter. Likewise, any other assets adjudicated or received in payment of debts after December 31, 2011, must be contributed.
7. These companies will be governed by the Consolidated Text of the Capital Companies Law, approved by Royal Legislative Decree 1/2010, of July 2, without prejudice to what is provided in this Law.
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OFFICIAL STATE GAZETTE
No. 262 Wednesday, October 31, 2012 Sec. I. Page 76627
3. The exclusive corporate purpose of the companies to which entities that have received financial support from the Bank Restructuring Orderly Resolution Fund (FROB) contribute their assets will be the administration and alienation, either directly or indirectly, of the assets contributed to it.
4. In the case of entities majority-owned by the Bank Restructuring Orderly Resolution Fund (FROB) as well as in the case of entities in which the Fund has been designated provisional administrator, the Fund will decide whether the credit institution must or must not constitute a company of those provided in this Chapter.
Prior to the decision to create said companies, the Bank Restructuring Orderly Resolution Fund (FROB) will submit to the Minister of Finance and Public Administrations an economic memorandum in which the economic-financial programming for the expected duration period is detailed. Based on said memorandum, the General Intervention of the State Administration will inform the Minister of Finance and Public Administrations of the possible effects of this operation on public accounts, who may oppose it motivatedly within a period of ten days from when said memorandum is submitted.
5. Regulatory instruments may be established to support financial acquisitions of capital in said companies.
Article 4. Contribution of assets.

1. Contributions to the company must be made before the end of the provision funding deadline applicable to the entity, as provided in Articles 1 and 2 of Royal Decree-Law 2/2012, of February 3, and Article 2 of this Law.
2. Contributions to the company will be valued at their fair value. In the absence of fair value or when there is difficulty in obtaining it, they will be valued at their book value, which will be determined taking into consideration the provisions that the assets must have constituted in application of Article 1.1 of Royal Decree-Law 2/2012, of February 3, and Article 1.1 of this Law.
   As a general rule, credit institutions must have constituted the aforementioned provisions at the moment of the contribution of the assets. Nevertheless, the Bank of Spain may extend, on an exceptional basis, the deadline for the constitution of said provisions up to the temporal limits provided in Royal Decree-Law 2/2012, of February 3, and in this Law.
   For the purposes of what is provided in Article 67 of the Capital Companies Law, the valuation established in accordance with the aforementioned paragraphs will replace the independent expert valuation provided in said provision, provided that the contribution is made within the provisioning calendar to which the contributing entity was obliged.
3. Entities that have received financial support from the Bank Restructuring Orderly Resolution Fund (FROB) pursuant to Article 2 of this Law will have a period of 3 years from the entry into force of Royal Decree-Law 18/2012, of May 11, to adopt and execute the precise measures so that the link of the asset management company with the entity is at most that of an associated company.
   Article 5. Alienation of assets.
   Companies participated by credit institutions that receive financial support under the provisions of this Law are obliged to alienate annually, at least, 5% of their assets to a third party distinct from the contributing credit institution or any company in its group. The administrators of said companies must have accredited experience in the management of real estate assets. cve: BOE-A-2012-13487

OFFICIAL STATE GAZETTE
No. 262 Wednesday, October 31, 2012 Sec. I. Page 76628
Article 6. Databases.
Credit institutions must have databases with the necessary information for the management of the assets they must contribute to the company according to what is provided in Article 3 of this Law. The Bank of Spain will determine the requirements these databases must meet. Said databases must be transferred to the company before the end of the provision funding deadline applicable to the entity, as provided in Articles 1 and 2 of Royal Decree-Law 2/2012, of February 3, and Article 2 of this Law.
CHAPTER III
Sanctioning regime
Article 7. Infractions and sanctions.

1. The obligations provided in this Law will be considered norms of order and discipline, with credit institutions and those holding administration and direction positions in them incurring administrative responsibility sanctionable in accordance with what is provided in Title I of Law 26/1988, of July 29, on Discipline and Intervention of Credit Institutions.
2. In particular, non-compliance with what is provided in this Law will be considered a serious or very serious infraction in accordance with what is provided in letter h) of Article 5 and in letter c) of Article 4 of Law 26/1988, of July 29.
   CHAPTER IV
   Fiscal regime of asset contribution operations to companies for asset management
   Article 8. Fiscal regime.
3. The fiscal regime established in Chapter VIII of Title VII of the Consolidated Text of the Corporate Tax Law, approved by Royal Legislative Decree 4/2004, of March 5, for the operations mentioned in Article 83 of said Law, including its effects on other taxes, will be applicable to the transmissions of assets and liabilities carried out in compliance with what is provided in Article 3 of this Law, even if they do not correspond to the operations mentioned in Articles 83 and 94 of the Corporate Tax Law.
4. The exception to the exemption provided in paragraph 2 of Article 108 of Law 24/1988, of July 28, of the Securities Market, will not be applicable to subsequent transmissions of the participations received as a consequence of the contribution of assets to the companies for asset management provided in Article 3 of this Law and of the participations of credit institutions affected by integration plans approved within the framework of banking restructuring regulations and reinforcement of own resources of credit institutions.
5. Credit institutions that carry out the aforementioned operations may request the Bank of Spain to request a report from the General Directorate of Taxes of the Ministry of Finance and Public Administrations, on the tax consequences derived from the operations referred to in paragraph 1 of this article.
   The report will be issued within a maximum period of one month, and will have binding effects for the organs and entities of the tax administration responsible for the application of the taxes. cve: BOE-A-2012-13487

OFFICIAL STATE GAZETTE
No. 262 Wednesday, October 31, 2012 Sec. I. Page 76629 Additional Provision First. Exceptional treatment of preferred participations and other instruments in circulation.
Credit institutions that have preferred participations or debt instruments mandatorily convertible into shares issued before the entry into force of Royal Decree-Law 18/2012, of May 11, or exchanged for the former in circulation, may include, in the plan referred to in Article 2 of this Law, the request to defer for a period not exceeding twelve months the payment of the remuneration provided, despite that, as a consequence of the sanitization they have had to carry out according to what is provided in this Law, they do not have sufficient distributable profits or reserves or there is a deficit of own resources in the issuing or dominant credit institution. The payment of the deferred remuneration may only be made after the deferral period has elapsed if there are sufficient distributable profits or reserves and there is no deficit of own resources in the issuing or dominant credit institution. Additional Provision Second. Tariff of notaries and property registrars. In cases requiring prior registration of transfers of financial or real estate assets as a consequence of sanitization and restructuring operations of financial entities, all transmissions carried out will necessarily be made in a single entry, and only the fees corresponding to the last registered operation will be accrued, according to number 2.1 of the registrars' tariff, or in its case, number 2.2, if it concerns loans or mortgage credits, based on the capital registered in the Registry. In cases of novation, subrogation, or cancellation of mortgage, even when previously the transfer of financial or real estate assets must be recorded as a consequence of sanitization and restructuring operations of financial entities, the registrations carried out will only accrue the fees established in number 2.2 of the registrars' tariff, corresponding to the novation, subrogation, or cancellation, taking as a base the registered capital, reduced by 60 percent, with a minimum of 24 euros. To determine the notarial fees for deeds of novation, subrogation, or cancellation of loans and mortgage credits, number 2.2.f) of the notaries' tariff will be applied, for all concepts, taking as a base the registered or guaranteed capital, reduced in any case by 70 percent and with a minimum of 90 euros. Notwithstanding the foregoing, number 7 of the tariff will be applied from the fifty-first page inclusive. This provision will be applicable with respect to all registrations carried out and deeds authorized from the entry into force of this Law. Additional Provision Third. Specific regime of the Official Credit Institute. The Official Credit Institute is excluded from the scope of application of this Law. Additional Provision Fourth. Modification of regulations on legal tender bills and coins. One. A new eighth bis article is introduced into Law 10/1975, of March 12, on the regulation of metallic currency, with the following wording:
«Article eighth bis. Authentication and treatment of euro coins.

1. The Bank of Spain will be the national competent authority for the purposes of what is provided in Regulation (EU) No. 1210/2010 of the European Parliament and of the Council of December 15, 2010, on the authentication of euro coins and the treatment of euro coins unfit for circulation. In particular, the Bank of Spain:
   a) Will receive coins that after an authentication process are considered presumably counterfeit and euro coins unfit for circulation; and b) In its case, will carry out the detection test on coin processing machines, sign the corresponding bilateral agreements with the manufacturers of these machines for the performance of said tests in the manufacturers' premises, and draft reports on the detection tests.
2. It will correspond to the Bank of Spain the development of the functions established in the cited Regulation regarding the following matters:
   a) Modalities of training of personnel of entities obliged to authenticate coins; b) Specific exceptions to the detection test on coin processing machines; c) Controls on entities, among others, to verify the correct functioning of coin processing machines; ---