Taxation on the sale of companies with real estate as current assets

On 29 March 2022, the Central Economic-Administrative Court ruled on the taxation of a sale of shares in a company with real estate accounted for as current assets.

In accordance with the provisions of the Transfer tax Law and the Securities Market Law, the transfer of shares, whether or not they are admitted to trading on an official secondary market, is exempt from taxation under this tax. However, this exemption does not apply to the transfer of shares whose assets are made up of at least 50% of real estate located in Spanish territory, or whose assets include securities that enable control to be exercised in another entity whose assets are made up of at least 50% of real estate. For this purposes real estate that forms part of the current assets of entities whose sole corporate purpose is to carry out construction or real estate development business activities will not be taken into consideration in the calculation.

In the case in question, the company being sold did not have as its exclusive corporate purpose the aforementioned corporate purpose, as it was broader. Therefore, the Court states that, in order to define the concept of exclusivity, its meaning must be defined as per the Spanish Royal Academy which is “unique, alone, excluding any other”.

In view of the above, transfers of companies whose corporate purpose consists solely of the construction or development of real estate may apply the exemption.

Taxation on the sale of companies with real estate used for rental purposes

Binding consultation V0464-22 clarifies the taxation of a Swiss resident on the sale of a shares in a company with a full-time employee and more than 50% of the assets in real estate.

The question is whether this transfer of shares is taxable in Spain or Switzerland according to the double taxation treaty between the two countries.

According to the aforementioned Treaty, the capital gain derived from this transfer could be taxed in Spain since more than 50% of the shares transferred are derived from real estate located in Spain, unless the real estate was used for an industrial activity of the company.

Neither the treaty nor the Non-Resident Income Tax (IRNR) regulations (nor the Personal Income Tax (IRPF) regulations, to which the IRNR rules refer to) contain a concept of “industrial activity”. The regulations governing the Economic Activities Tax (IAE) do contain the concept of “industrial activity”. According to the criteria of the Central Economic-Administrative Court in its resolution 00-4009-17 of 26 February 2020, the IAE rates that have a connection with industrial activities are the divisions of (i) energy and water, except for electricity production groups, (ii) extraction and transformation of non-energy minerals and products derived from the chemical industry, (iii) metal transformation industries (precision mechanics) and (iv) other manufacturing industries.

In conclusion, the rental of real estate does not fit into any of the above categories and the capital gain from the sale of the shares can be taxed in Spain.