Spain: Participation exemption in ‘pure holding companies’

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Spain: Participation exemption in ‘pure holding companies’

gallardo.jpg

Gonzalo Gallardo

The Spanish Corporate Income Tax Law (CIT Law) contains a tax exemption for income obtained by Spanish entities from the transfer of ownership interests in companies – whether resident or non-resident – provided that:

  • A the time of the transfer, the ownership interest held, directly and indirectly, is 5% or more, or the value of the shareholding is over €20 million ($22.1 million) and it has been held for at least one year; and

  • In the case of non-resident companies, that they have been subject to a foreign tax similar to the Spanish tax at a rate of at least 10% (the CIT Law presumes this requirement is met, assuming the entity is resident in a country with which Spain has signed a double tax treaty that includes an exchange of information clause, which would apply to this entity).

When a group of companies is being transferred, these requirements must be met by all the group companies. In addition, there are certain rules – the application of which is often quite complex – used to determine whether these requirements are met. If all the companies do not meet the requirements, these rules are applied to calculate the part of the income obtained that is exempt.

However, meeting all the requirements doesn't automatically result in a corporate income tax exemption. In certain cases, either the exemption may not be applicable or is only partially applicable.

These exceptions include related companies – whether resident in Spain or not – which are defined in the CIT Law as "pure holding companies" (entidades patrimoniales). This refers to companies in which more than half of the assets, according to the balance sheet, are made up of securities or are not linked to any economic activity. The rule specifies the parameters for these purposes.

Of the specific provisions contained in the CIT Law in respect of these new "pure holding companies", the tax treatment of income obtained by an entity's shareholders from the transfer of their shares should be noted. This income does not qualify for the exemption because the exemption would only apply to undistributed profits generated from its acquisition. This rule is also applicable when the "pure holding company" forms part of a group of companies that is being transferred, in which case the exempt part of the gain obtained must be calculated by applying certain complex rules set out in the said law.

However, no specific treatment is stated for dividends distributed by these companies to their shareholders, nor for the income obtained by these companies from the transfer of other entities which are not "pure holding companies". This can, in certain cases, give rise to double taxation, which the rules fail to rectify (since the income from the transfer of the "pure holding company" and any profit subsequently generated by such entity are both taxed), although in some situations it is possible to avoid this.

Of the various conclusions to be drawn from this brief outline:

  • Particular care should be taken when analysing the taxation in Spain of transfers of shareholdings in companies or groups of companies; and

  • It is advisable to review the tax structure of corporate groups in the light of this new parameter introduced by the CIT Law.

Gonzalo Gallardo (gonzalo.gallardo@garrigues.com)

Garrigues Madrid

Tel: +34 915145200

Website: www.garrigues.com

more across site & shared bottom lb ros

More from across our site

The judgment, which saw Denmark's Supreme Court rely on OECD TP guidance, sets aside more than 15 years of consistent administrative practice, experts have told ITR
Belgium’s new coalition government has gone ahead with a new exit tax regime that could land it in the courts.
Brazil’s government has not officially framed the bill as a countermeasure amid trade tensions with the US, but the move is being considered as part of Brazil’s strategic response, one expert tells ITR
Understanding India’s income tax landscape can help charities ensure compliance, optimise tax benefits, and enhance their impact, writes Raghav Bajaj of Khaitan & Co
Tax advisers in Brazil are rising above the country’s notoriously complex tax system to deliver high-quality advisory services, ITR’s exclusive in-house data reveals
ITR’s data has highlighted the US firm’s ambition to become America’s ‘premier’ tax player via a concerted partner recruitment strategy
Jaap Zwaan’s arrival continues a recent streak of A&M Tax investing in the region; in other news, the US and Japan struck a deal that significantly lowered tariff rates
In a world where international tax concepts rely on human activity, Leonard Wagenaar poses existential questions about the future of such ideas when AI is ever-present
France v Axa provides a practical illustration of how the burden of proof is applied in TP matters under French law, ITR also heard
In an exclusive interview with ITR, Ian Gary calls for a central public CbCR database and bemoans the US’s lack of involvement in international tax transparency
Gift this article