Corporate Income Tax Law

Change in the favorable criterion of the DGT regarding the classification of companies that start their activity as asset-holding entities

Professional articles

Laia Castellà | Abogada y Economista Manager

The Directorate General of Taxes (DGT) has issued a response on April 12, 2023, in relation to Article 21.3 of the Corporate Income Tax Law (LIS), which marks a significant change in criteria. This has an important impact in relation to the classification as asset-holding entities of companies that have not properly started their activity.

Firstly, it is important to bear in mind that the tax regulations do not allow the application of the 95% exemption on the gains derived from the transfer of an investee when it is considered a holding company according to article 5 of the LIS.

Until now, the DGT had denied the application of the 95% exemption on the sale of shares of companies that, despite not having formally started their economic activity, had completed all the prerequisites required by the sectorial regulations, such as obtaining licenses and permits. The DGT considered that these preparatory actions did not constitute a material start of the economic activity and classified these companies as patrimonial, thus denying the application of the exemption.

 Corporate Income Tax Law

However, through consultation V0863-23, the DGT has changed its criteria in relation to the qualification of these companies as patrimonial entities. It now recognizes that those companies that have invested time and resources to obtain the permits and licenses required for their activity, despite not having formally started the economic activity, should be considered as going concerns. Therefore, the DGT no longer classifies them as asset-holding companies and allows the application of the 95% exemption.

Until now, it was very frequent the case of development companies that, before starting the construction work, had to process all kinds of licenses and permits and that, due to the fact that they had not started the construction, they were considered as patrimonial companies. With this change in criteria, all these companies are now considered to be operational.

This change of criteria, apart from affecting corporate income tax payers, could also have implications for Wealth Tax (IP) and Inheritance and Gift Tax (ISD). By ceasing to consider these companies as asset-holding companies, the family business tax regime could be applied to them.

In short, this change in the DGT's criteria provides new opportunities for companies that are starting their activity and have complied with the necessary legal requirements. It is a positive step that may have a considerable impact on the tax and business landscape, and it is important to be aware of the implications and possible benefits that this new criterion may offer.

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