Recently, a binding resolution from the General Tax Office (“GTO”) dated April 12, 2023 (consultation number V0863-23) has been made public, which corrects the criterion held by the GTO in a binding resolution dated August 12, 2021 (consultation number V2265-21) by accepting that the exemption provided in Article 21 of Law 27/2014 regulating the Corporate Income Tax applies to the positive income derived from the transfer of a company that, despite not carrying out an economic activity, has undertaken preparatory actions for it. Therefore, such type of company cannot be classified as a holding entity – especially when more than half of its assets are not represented by securities or constitute assets not allocated to an economic activity – merely because the intended economic activity has not materialized.
The issue arises from the fact that the aforementioned Article 21 excludes – in its section 5.a) – the 95% exemption on the positive income derived from the transfer of a company in the event that the transferred company qualifies as a “holding entity.”
The “holding” status of a company is governed by section 2 of Article 5 of the same Law, which states literally “…/… a holding entity, and therefore not engaged in an economic activity, is one in which more than half of its assets consist of securities or are not allocated …/… to an economic activity.” It is worth noting that the set of preparatory actions for the business activity itself constitutes an economic activity, as explicitly acknowledged by the GTO, as they constitute a “link in the aforementioned commercial activity that has determined a sequence of actions clearly aimed at the production or distribution of goods and services in the market.”
Therefore, we consider that this recent binding resolution of the GTO is a success that provides legal certainty, which was not present – due to the absence of legal basis – in binding resolution V2265-21, since the definition of a holding entity does not allow for the inclusion of a company that has initiated but not completed a certain business activity, nor can the GTO create scenarios to which the exemption provided in Article 21 does not apply, other than those specified in the Law. Finally, it should be noted that, although the 2021 resolution dealt with a case of a company transferred in the renewable energy sector and the 2023 resolution refers to a company in the gaming sector, specifically in the recreational machines sector, we believe that the GTO’s appropriate correction of criteria is applicable to all business sectors, as the underlying issue is not conditioned by the type of company but by the fact that a company is not a holding entity if it has not yet developed the economic activity that constitutes its corporate purpose but has made decisions and taken actions for that purpose, provided that the majority of its assets are not represented by securities or assets not allocated to economic activities.
