BackSubsidiaries engaged in promoting photovoltaic solar parks are not considered
holding companies, as they are involved in an economic activity. If these entities
manage production resources or human capital to participate in the production or
distribution of goods or services in the market, they may qualify for a tax exemption
under Article 21 of the Corporate Income Tax Law concerning income from the sale
of their shares in subsidiaries.
Regarding the agreed-upon price for the sale of shares in subsidiaries, it is divided
into a fixed portion included in the Corporate Income Tax base in the fiscal year of
the sale and a variable portion to be paid in the future, contingent on uncertain
events. This variable portion will be incorporated into the tax base in the fiscal year
when these uncertain events occur.
The query from the Directorate General of Taxes, dated July 26, 2023, V2200/2023,
examines the tax treatment of activities of an entity whose primary focus is
managing, purchasing, technically analyzing renewable energy facilities, and
promoting, marketing, and operating photovoltaic solar parks. Furthermore, this
entity owns 100% of the share capital of various companies or special-purpose
vehicles (SPVs), responsible for managing and promoting different photovoltaic
projects in Spain.
Each of the subsidiary entities is engaged in the development and promotion of
photovoltaic solar parks, including activities such as feasibility assessment, land acquisition, preparation of technical studies and projects, legal procedures, and obtaining permits and licenses for the construction of photovoltaic solar parks.
Therefore, these entities are not considered holding companies since their assets
are earmarked for economic activities. If these subsidiaries organize their own
production means or human resources with the intention of participating in the
production or distribution of goods or services in the market, the parent entity can
benefit from the tax exemption outlined in Article 21 of the Corporate Income Tax
Law when selling its stake in these subsidiaries and earning positive income from it.
The agreed-upon price for the sale of stakes in the subsidiaries is divided into two
parts: a fixed portion and a variable portion to be paid in the future after the
transaction. The variable portion depends on uncertain events such as
interconnection costs, bonuses granted by local administrations, and the final cost of
leased lands where the solar park is located, among other factors. The amount of the
variable part will be determined once the development phase is completed, known
as “Ready To Build” (RTB).
The part corresponding to the fixed portion of the agreed-upon price will be included
in the Corporate Income Tax base in the fiscal year when the sale takes place,
regardless of when the payment is received. On the other hand, the variable amount
will be incorporated into the tax base in the fiscal year when the aforementioned
uncertain future events occur.
In the situation being analyzed, the company’s subsidiaries are Special Purpose
Vehicles (SPVs) currently in the planning and development phase. Construction of
photovoltaic solar parks has not yet commenced, as they are in the process of
obtaining the necessary permits, licenses, and authorizations.
During the planning phase, they are engaged in activities such as feasibility
assessment and land acquisition for the projects. They are also preparing the
required technical studies, managing the legalization of facilities, and ensuring they
obtain all necessary approvals for the construction of photovoltaic solar parks
(referred to as PLAs).
This planning phase encompasses activities ranging from securing access to the
electrical grid to obtaining municipal construction permits. Once this permit is
obtained, the project is considered “Ready to Build” (RTB). This stage typically lasts
between 18 and 36 months and includes activities such as technical-economic
feasibility analysis, compliance with the legal requirements for grid access, securing
grid access rights, assessing land suitability, and negotiating long-term lease
contracts. Additionally, it involves the preparation of technical studies, environmental
impact assessments, and obtaining permits, licenses, and authorizations.
During this planning and legalization phase, the SPVs do not have in-house staff to
carry out these economic activities. They have chosen to outsource all the work due
to the diversity of tasks, the weekly time required, and their temporary nature.
After the initial development phase, the SPVs plan to hire their own staff to carry out
activities related to the management of photovoltaic solar parks. The parent
company and other approved providers will provide the necessary resources.
The sale of shares in the SPVs can occur at two moments: when the rights to access
the electrical grid for building a power generation plant are obtained or when the
project reaches the “Ready to Build”(RTB) state with all necessary permits. In the
latter case, the SPV can determine the precise costs once the technical
requirements imposed by Public Authorities are known, including environmental
compensatory measures.
In these transactions, the value of the shares is contingent due to the uncertainty in
administrative processes. This value includes a fixed part, ranging from a non-
refundable minimum amount to a maximum amount based on the permitted capacity
in the permits. It also includes a variable part determined by factors such as
interconnection costs, local bonuses, and leased land costs.
The fixed price of the shares is established after the approval of the legalization of
the facilities by the authorities, known as “Ready to Build” (RTB). Additionally, in the
share sale agreement, payment milestones for the fixed price are agreed upon,
which generally coincide with the moments when Public Authorities issue their
resolutions. Sometimes, part of the fixed price is deferred until the photovoltaic solar
plant is operational.
The variable price of the shares is determined as investment costs and operating
costs of the facility are finalized. However, the final determination of the variable
price depends on reaching the RTB state, regardless of the payment milestones. In
some cases, both parties may agree to a promise of purchase-sale contract with an
initial payment (earnest money) before the transfer of shares.
The income generated from the sale of 100% of the shares of the SPVs will be
exempt according to the Corporate Income Tax Law, provided certain requirements
are met, including holding the shares for at least one year.
However, if the SPVs are considered patrimonial entities, as defined by the law, the
portion of the income that does not represent an increase in undistributed profits
during the ownership of the share will not be exempt. To determine if the SPVs are
patrimonial entities, it will be examined whether more than half of their assets consist
of securities or if they are not engaged in an economic activity. The test of whether an economic activity has commenced is based on the proper organization of resources and means to intervene in the production or distribution of goods or
services in the market.
In this case, the SPVs have, as their main activity, the promotion of photovoltaic
solar parks, which involves a series of activities related to the search for suitable
land, feasibility analysis, contract negotiation, grid interconnection, environmental
impact studies, and obtaining permits and licenses.
Each of the subsidiary entities SPVs is involved in the promotion and development of
photovoltaic solar parks, carrying out various activities such as pre-feasibility, land
acquisition, technical studies, and obtaining permits and licenses. This means that
these entities are not considered patrimonial entities, as they are engaging in an
economic activity.
Therefore, if these entities organize their own means of production or human
resources to intervene in the production or distribution of goods or services in the
market, the consulting entity can apply the tax exemption under Article 21 of the
Corporate Income Tax Law regarding the income obtained from the sale of its shares
in the SPVs. However, this determination is based on specific facts that the taxpayer
must demonstrate through legally admissible evidence and will be evaluated by the
competent authorities of the Tax Administration.
Regarding the timing of the recognition of income derived from the sale of shares,
the agreed-upon price consists of a fixed portion and a variable portion to be paid in
the future. The variable portion depends on future and uncertain events such as
interconnection costs, local bonuses, and the final cost of leased land where the
solar park is located. The determination of the variable portion is made once the
“Ready to Build”(RTB) status is reached, marking the end of the development
phase.
The income derived from the sale of shares in subsidiary companies, corresponding
to the fixed portion of the agreed-upon price, will be included in the taxable base of
Corporate Income Tax in the fiscal period in which the transaction occurs, regardless
of when the payment is received. As for the income related to the variable
component of the price, the amount of which depends on uncertain future events and
cannot be accurately estimated at the time of the sale, it will be integrated into the
taxable base of Corporate Income Tax in the fiscal period in which these future
events materialize.
However, these determinations are subject to concrete evidence that the taxpayer
must provide using any means of evidence valid under articles 105 and 106 of the
General Taxation Law. The evaluation of this evidence will be carried out by the
competent bodies of the Tax Administration.
B Law & Tax International Tax & Legal Advisors.
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