Exemption for Renewable Energy Projects – Introduction
In an impactful decision, the Spanish General Directorate of Taxes (SGDT) has clarified that capital gains exemptions will apply to the sale of shares in subsidiaries dedicated to photovoltaic energy projects, even if the construction has not commenced.
This announcement marks an essential step in providing clarity for the renewable energy sector.
What Triggered This Decision?
The ruling specifically pertains to holding companies engaged in renewable energy projects, focusing on photovoltaic energy.
The subsidiaries or Special Purpose Vehicles (SPVs) involved in these projects are at various stages, from land scouting to feasibility analysis and permits and licenses management.
However, these SPVs might not possess their own resources and personnel.
Exemption Application
The SGDT’s perspective is that these SPVs should not be considered mere asset-holding entities.
Instead, they are actively involved in the economic activity of promotion and development.
Provided that they have their organizational setup for production and distribution, the SGDT allows for the application of the exemption for capital gains derived from the sale of these SPVs, even before the actual construction work on the photovoltaic solar parks has started.
Timing Matters
The SGDT emphasizes that the income resulting from the sale of SPVs should be allocated to the corporate income tax in the year it accrues.
This applies to the fixed part of the agreed price.
For the variable part, dependent on uncertain future events, it should be included in the tax base when those events occur, and a reasonable estimate can be made of the variable price.
Previous Rulings
This ruling closes the debate that arose from previous similar cases.
Some prior rulings questioned the exemption when economic activity had not yet materially commenced.
However, recent rulings have taken a more favorable stance regarding the application of the exemption.
Renewable Energy Sector
This ruling provides much-needed clarity for businesses operating in the renewable energy sector, allowing for the application of capital gains exemptions on SPV sales.
It is essential to review the conditions and assess each case individually to ensure compliance.
Transfer Pricing Considerations
This decision also highlights the need to evaluate the valuation of services provided by holding companies and group entities to SPVs.
Such assessments should align with market value and necessitate a review of the group’s transfer pricing policy.
If you have any queries about Spain’s Exemption for Renewable Energy Projects, or Spanish tax matters in general, then please get in touch.