Tax on economic activities: Commencement of activities in a corporate group
The Revised Local Finances Law establishes that taxpayers that commence activities in Spain will be exempt from paying the tax on economic activities for the first two tax periods, provided that they have not pursued the same activity under different ownership, as may happen, for example, where there has been a merger, spin-off or contribution of a line of business.
Although the wording of the law seems clear enough, in recent years the Spanish tax authorities have only disallowed this exemption for companies that commence the same activity as that pursued by other companies in the corporate group to which they belong, even though the activity has not, apparently, taken place on the terms required by the law. This rule is consequently preventing corporate groups that carry on the same activity with more than one company or trademark, as is often the case, from benefiting from this exemption.
Against this backdrop, the High Court of the Valencia Autonomous Region, based on a Supreme Court judgment from 2013,which has been already been echoed by other high courts, has ruled that the simple fact of belonging to a corporate group is not a ground for denying the exemption but rather is necessary to evidence succession – universal or individual – in the ownership or the pursuit of the economic activity pursued by another taxpayer of the tax.
Furthermore, the Supreme Court continues to find that limiting application of the exemption for the commencement of an activity where the company belongs to a corporate group is unacceptable and infringes the principle of lawfulness guaranteed by the Spanish Constitution, given that when the legislature has intended to restrict the application of an exemption, and has intended for the corporate group to be considered for this purpose, it has said so in the law.
Therefore, corporate groups that intend to set up new companies to commence their activity in different geographical areas or under the creation of different trademarks, or simply as a matter of corporate or commercial organization, should, based on the above judgements, be able to benefit from applying the exemption if there has been no actual succession of the activity from another group company.
Author: Esther Vidal Falcó
Principal Associate in the Barcelona Tax Department
Article published in the Diari de Tarragona