Tax on Economic Activities: Corporate Group v. Family Group
Tax laws generally refer us to article 42 of the Commercial Code (“CC”) for the definition of the concept of the “Corporate group”. Pursuant to this article, a group exists when a company controls, or is able to control, directly or indirectly, one or more other companies. A position of control is also presumed to be held when the companies concerned have the same directors.
In the case of the Tax on Economic Activities, the Law stipulates that Corporate Income Tax taxpayers are exempt from this tax when their net revenues amount to less than Euros 1 million. The Law also stipulates, however, that when an entity forms part of a corporate group within the meaning of article 42 of the CC, the net revenues figure to be considered is that of all the companies in the group put together.
One of the main doubts which has arisen in relation to this Law is whether two or more companies majority-owned and majority-controlled by the same individuals or by individuals linked by family ties (“family groups”) constitute a corporate group.
The view of the Spanish Accounting and Audit Institute (“ICAC”) is that although the main consequence of the amendment of article 42 of the CC in 2007 was the elimination of the obligation with respect to the consolidation of so-called coordination groups, made up of companies under the same decision-making unit, the current wording envisages the possibility of control being exercised without an ownership interest being held. The ICAC therefore concludes that companies in which ownership interests are held by individuals linked by family ties would trigger the presumption envisaged in the aforementioned article – although this can be refuted by evidence to the contrary – since such a situation implies joint action and the control of both companies.
On the other hand, the Directorate General of Taxes (DGT) has its doubts with respect to this criterion. Indeed, in several of its rulings, it has affirmed that companies controlled by the same individuals (even when there is a family tie) are not to be regarded as a group for the purposes of article 42 of the CC.
For the purposes of the Tax on Economic Activities, the DGT has recently reached the conclusion (adopting the same criterion as in one of its rulings from 2008 but deviating from the position maintained in many other of its rulings) that where the sole director of two companies is the same person and the two companies also have the same shareholders, a corporate group is presumed to exist, meaning that the net revenues of both companies must be added together, and if the result exceeds Euros 1 million, neither of them will be exempt from IAE. It is therefore advisable, for the purposes of this Tax, to review the directorship and control situation of family groups in order to establish whether all the companies making up the group should or should not be paying IAE or, where appropriate, determine the arguments which can be used against the presumption established in article 42 of the CC.
Garrigues Tax Law department