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Author: Beltrán Sánchez. Director of Transfer Pricing. Bové Montero y Asociados


New binding consultation with regard to the application of the exemption of Article 21 of the Corporate Income Tax Act.


On 29 September 2021, a new binding consultation (V2265-21) has been published regarding the application of the exemption of Article 21 of the Corporate Income Tax Act (“LIS”), or in other words the exemption on the sale of shares by entities subject to Corporate Income Tax.

Although it is raining on wet ground, as the Directorate General for Taxes (DGT) has expressed its opinion on this issue on several occasions, this consultation takes on particular relevance since it has a direct impact on one of the most powerful and strategic sectors of the moment: Renewable energies.

The consultation analyses a relatively common case in the sector, involving a sale of shares of an entity set up for the promotion, construction and use of a photovoltaic park by its parent company.

During the first phase of the project, the entity, whose shares are to be sold, uses the material and human resources of its parent company (the selling entity) to process all the necessary permits and licenses to begin the construction of the plant.

The sale takes place when this first phase is completed, i.e. when all permits and licenses are obtained to start the construction of the plant, which is a widespread practice in the sector.

It is important to note at this point that, over the last few years a large business network dedicated solely to this activity has been generated, i.e. to the development of projects for the construction of photovoltaic plants until all administrative permits and licenses have been obtained.

The Directorate General of Taxes establishes that the capital gain obtained in the sale of such shares is exempt from the Corporate Income Tax in accordance with the provisions of Article 21 of LIS if:

– It meets the requirements set out in section 1, i.e. minimum percentage of shareholding and holding period.

– None of the circumstances set out in section 5 applies, which provides that the exemption shall not apply to income derived from the transfer of a direct or indirect holding in an entity considered to be a holding entity, which does not correspond to an increase in undistributed profits generated by the investee during the holding period.

In accordance with the definition established in the LIS, a holding entity, and therefore not carrying out an economic activity, is understood as an entity in which more than half of its assets are constituted by securities or are not assigned to an activity.

Following the argument of the DGT, the SPV does not carry out economic activity since it has not materially initiated the promotion of the solar plant. In its opinion, the entity has only carried out the processing and obtaining of all the necessary permits for the development of the installation at the time of transfer, and neither the mere intention or will to carry it out nor the simple preparatory actions or those tending to begin the effective development of the activity entail its material beginning.

After careful analysis of the published consultation, there seems to be a confusion of terms, which may be of significant relevance when interpreting it. In this industry, there is a clear differentiation between development, promotion and construction of a solar plant, and yet there is some confusion of these terms throughout the text of the consultation. The promotion and development phase, according to DGT’s own words (V2931-16), consists of “market prospecting, search for business opportunities and promotion of photovoltaic plants by obtaining the necessary licenses and permits for the construction and operation of such installations”. Thus, once the building license has been obtained and the project is ready for construction (“Ready to Build” or RTB), the promotion and development phase is over and the engineering and construction phase begins.

It is therefore somewhat confusing to state that the promotion activity has not been initiated, having only carried out the obtaining of permits to start the construction, taking into account the DGT’s own definition of the promotion and development phases in previous consultations.

Taking into account the binding consultation V2931-16, where it is stated that the development phase of the project is considered an economic activity in itself, we could conclude that we are facing a possible change on the criteria of the Tax Administration that, even though the confusing wording, the previous consultations and the economic reality of the sector, we should take with great caution.


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