BackThe Spanish Supreme Court has determined that the appropriate time to verify whether the recipient meets the requirements to apply the 95% reduction in the taxable base of the Inheritance and Gift Tax for the donation of shares in a commercial entity is the moment at which the donation takes place. This means that, in order to apply the reduction, it must be assessed whether the recipient is performing remunerated management functions and earning more than 50% of their income from such functions at the time of the donation.
This ruling stems from two judgments of October 31st and November 13th of 2024, in which the Court clarified the temporal period for verifying whether the requirements set forth in Article 20.6 of the Inheritance and Gift Tax Act are met. The case concerns the donation of shares in a commercial entity and addresses whether, in order to assess whether the recipient meets the condition of earning more than 50% of their income from management functions, the moment of the donation or the full year in which it occurs should be considered. The Court ruled that the exact moment of the donation must be considered, that is, July 1stof 2005 in this case.
The Court also considered whether the doctrine of a previous judgment, dated December 16th of 2013, which dealt with a transfer of shares in a mortis causacontext, could be applied to an inter vivos donation. In that judgment, it was stated that the key moment to check whether the requirements for applying the reduction were met was the accrual of the tax, that is, the time of transfer (in the case of mortis causa, the date of death). The Supreme Court extended this same solution to the donation case, holding that, although there is no early accrual of personal income tax, the determining moment for applying the reduction is the moment of the donation, when the transfer of the family business takes place.
Finally, the Court concluded that, in order for the requirement to be met, it must be verified in the fiscal year in which the donation is made, that is, in 2005, and not in previous or subsequent years. Therefore, the moment of the donation serves as the reference point for determining whether the requirements are met and for applying the reduction in the taxable base of the Inheritance and Gift Tax.
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