Tax consequences in spain of acquisition of solar farms and solar production plants

06.2010

There has been a discussion in Spain for a number of years on whether photovoltaic plants producing solar energy (solar farms) could be regarded as immovable property. If so, the buyer of shares of a company which owns one of these plants would have to pay 7% Property Transfer Tax (Impuesto sobre Transmisiones Patrimoniales or ITP) under the provisions of Art. 108 of Law 24/1988 regulating the Securities Market, as this purchase would be considered equivalent to the direct purchase of a property.

Given that these companies often change owners, this tax makes the purchase value of the company much more expensive. We must not forget that, unlike VAT, this tax is not deductible and therefore it involves an increase in the purchase price.

Up until now, company purchases were not subject to this tax, as the authorities had not had the time to reach a decision in this regard (the success of solar farms is a recent phenomenon). Unfortunately, in recent consultations, the Spanish taxation authorities affirmed that these purchase transactions must pay the aforementioned 7% tax rate. In a decision dated 19-01-2009, it was initially stated that photovoltaic panels were movable property and therefore not taxable according that rule.

The surprise arrived later, on 29-12-2009, when a difference was made for the first time between unassembled photovoltaic panels (movable property) and solar farms (with assembled panels), which are deemed immovable property, and taxable under Art. 108. Shortly thereafter, there were further decisions (because the tax authorities recognised the importance of these transactions in a framework of successful solar farms) that consolidated this criterion (decisions dated 18-01-2010, 25-01-2010 and 23-04-2010.)

It must be noted that these consultations only express the opinion of the taxation authorities (a party in interest, given the enormous taxation collection interests at stake) and do not, under any circumstances, represent a valid final opinion, which can only arise from consolidated jurisprudence. Until today, there are no judgements directly addressing the issue, although it is likely that in a few years’ time, following tax inspections which are opened and brought before the courts, some judgements will be pronounced on the matter.

In any event, such judgements shall only be binding for other judges if they are pronounced by the Supreme Court and at least 6 or 7 years will have to go by until that point is reached. However, there could still be surprises in this regard, as part of the doctrine questions whether these photovoltaic energy production plants are immovable property, in addition to whether they should be governed by the provisions of Art. 108 of the Law regulating the Securities Market, a regulation aiming at preventing fraud that was initially conceived for transactions dealing exclusively with immovable property. See more about Art. 108 on our tax news of 25-11-2010.

In addition, there is a further question as to what the criteria for the depreciation of these solar farms regarding Corporate Tax should be, as the criteria so far was that these were not immovable property, thus allowing them to be depreciated faster.