The sale of companies whose assets consist of real estate should, from a commercial and tax point of view, be studied in detail in accordance with the regulations in force, as otherwise it could be classified as tax avoidance by avoiding the legal transaction of the sale and purchase of the real estate in question.
Firstly, from a commercial point of view, it should be noted that the transfer of company shares is regulated in article 106 et seq. of the Capital Companies Act (LSC), which establishes the obligation to notarise the transfer of company shares; however, the Supreme Court ruling of 5 January 2012 establishes that the requirement to notarise the transfer will not be a constitutive requirement, but rather will confer evidentiary value and publicity value to the transfer.
From the point of view of taxation, we must differentiate whether we are dealing with the condition of transferor or acquirer:
In the case of the transferor of the shares, we must bear in mind that, as it is a company, he/she will incur a capital gain or loss which will be included in the taxable base for corporation tax.
On the other hand, in the case of the acquirer of the shares, Article 45. I, B, 9 of Royal Legislative Decree 1/1993, of 24 September, approving the revised text of the Law on Transfer Tax and Stamp Duty (TRLITPAJD) establishes that “transfers of securities, whether or not they are admitted to trading on an official secondary market, shall be exempt (…) in accordance with the provisions of Article 108 of Law 24/1988, of 28 July, on the Stock Market”.
Similarly, Article 314. 1 of the Securities Markets Law (LMV) exempts the transfer of securities, both from the point of view of ITP and VAT; However, the second paragraph of the aforementioned article states that “transfers of securities not admitted to trading on an official secondary market carried out on the secondary market are exempt from the provisions of the previous paragraph, which will be subject to the tax to which they are subject as transfers of real estate for valuable consideration, when such transfers of securities are intended to avoid payment of the taxes that would have been levied on the transfer of the real estate owned by the entities to which the securities represent”.
In this regard, the Directorate General for Taxation establishes in its CV V0096-19 the concurrence of three requirements for the application of the NON-exemption:
1.- That it is a transfer of securities carried out on the secondary market, which excludes the acquisition of newly issued securities, which would take place on the primary markets.
2.- That the securities transferred are not admitted to trading on an official secondary market, which excludes transfers of securities admitted to trading on such a market (without prior temporary admission requirement).
3.- The intention or intention to evade payment of the taxes that would have been levied on the transfer of the real estate owned by the entities to which these securities represent (animus defraudandi), which is a question of fact that cannot be determined a priori by this Management Centre, but must be sufficiently proven by the tax administration responsible for the management of the applicable tax.
The question we could ask ourselves is: in what cases does one act with the intention of avoiding payment of the corresponding tax? Article 314 of the LMV itself provides an answer to this question and establishes that, unless there is proof to the contrary, it will be understood that there is an intention to avoid payment when:
(a) Control is obtained over an entity at least 50 per cent of whose assets consist of real estate located in Spain that is not assigned to business or professional activities, or when, once that control has been obtained, the shareholding in it increases.
- b) Control is obtained over an entity whose assets include securities that enable it to exercise control over another entity at least 50 per cent of whose assets consist of real estate located in Spain that is not involved in business or professional activities, or when, once this control has been obtained, the shareholding in it increases.
- c) The securities transferred have been received for contributions of real estate made when companies are incorporated or their share capital is increased, provided that such assets are not used for business or professional activities and that no more than three years have elapsed between the date of contribution and the date of transfer.
Thus, it should be borne in mind that the presumption that at least 50% of the company’s assets are not assigned to an economic or business activity cannot be proven otherwise, since the requirements set by the legislator are specific and will be analysed in a later article. Otherwise, there may be other types of presumptions where it would be necessary to make allegations, but it will be up to the competent tax administration to prove the intention to avoid payment.
In summary, and in the case of this type of operation, it is essential to seek advice in order to avoid any type of regulatory risk which, as we have analysed, is not trivial in the case of transfers of shares in companies whose assets are made up of real estate.
At MDG Advisors we have a specialised team that will advise you in detail to your personal situation in order to obtain the best result for your needs.
Jesús Raya Zamora.
