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  • ARTICLE - Spain

    Corporate income tax on transfer of shares – GDT clarification

    08 Jun

    Corporate income tax on transfer of shares - Introduction

    The Spanish General Directorate of Taxes (GDT) has recently issued a binding ruling.

    The ruling clarifies the exemption from Corporate Income Tax for the transfer of shares in entities that have obtained the necessary permits for commencing their activities - even if they have not yet materialised their operations.

    This decision marks a change in the approach taken by the GDT. Of course, it will also have significant implications for businesses involved in such transactions.

    The Ruling and Background

    The ruling by the GDT centers around a consulting entity (A) that held a 100% stake in another entity (S) engaged in online gaming licenses.

    Although entity (S) had not commenced its economic activity, it had acquired all the required administrative licenses, incurring substantial expenses in the process.

    The value of these licenses exceeded 50% of entity (S)'s asset value. Entity (A) intended to transfer its entire shareholding in entity (S) to an unrelated entity.

    The GDT was asked to confirm whether the tax exemption under Article 21.3 of the Corporate Income Tax Law applied to the positive income generated from this transfer.

    The GDT concluded that as long as entity (S) had organized itself, either independently or using its own or third-party resources, for the purpose of engaging in the production or distribution of goods or services, entity (A) could avail the exemption under Article 21 of the Corporate Income Tax Law.

    This ruling reference is CV 0863/23.

    Change in Approach

    This ruling signifies a departure from a previous binding ruling, CV 2265/21, issued by the GDT in 2021.

    In that ruling, the GDT had held that the transfer of 100% shares in an entity that owned land undergoing permit processing for the installation of a solar plant was not exempt from Corporate Income Tax, as the economic activity had not materially commenced.

    However, it is worth mentioning that the tax authorities of Navarra had already deviated from this approach, deciding in a similar case that the exemption should indeed apply.

    Implications and Expert Insights

    The recent ruling by the GDT is a positive development for businesses seeking clarity on the Corporate Income Tax exemption. It brings reassurance and aligns with the correct interpretation of the law.

    Nevertheless, it is crucial to evaluate each case individually, considering the specific circumstances and ensuring proper declaration of all economic activities performed up until the point of the share transfer.

    Corporate income tax on transfer of shares - Conclusion

    The Spanish General Directorate of Taxes has taken a significant step in clarifying the application of the Corporate Income Tax exemption in these circumstances.

    Theruling marks a departure from a previous stance and provides much-needed clarity for businesses engaging in such transactions.

    As always, careful consideration of each case's particulars is essential to ensure compliance with tax regulations.

    If you have any queries about corporate income tax on transfer of shares or Spanish tax matters in general, then please do get in touch.

    The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

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    MR BLAKEFIELD. REGAL CAPITAL. FLORIDA.

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