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Corporate tax benefits in Spain for subsidiary companies when their administration is located at the parent company and the subsidiary has no employees
Clients often ask us whether the subsidiary of a group can benefit from certain tax advantages in the case where the subsidiary has no employees or regular management bodies managing them directly, and the management of these subsidiaries is carried out directly from the parent company, where all administrative services are based and all employees are located.
If taxation rules are strictly applied, certain tax advantages would not be applicable, as these are usually associated with the existence of staff managing the company (thus to avoid shell company fraud). Fortunately, the Spanish authorities do not appear to be as strict in certain cases and allow the application of taxation advantages requested by a subsidiary, as it is deemed that the entire group must be examined as a whole, as a rational economic unit, as provided by two answers to consultations made to the Spanish tax authorities dated 19-02-2010 and 11-02-2010.
In the first case, the dispute surrounded the question of whether subsidiary companies managing the generation of renewable energy electric power without any employees (as the management is located at the parent), can benefit from the freedom of amortization when new staff is hired, even when the subsidiary company has no employees.
In the second case, the analysis examined whether a group of subsidiaries in foreign countries devoted exclusively to the rental of properties can benefit from an exemption on the revenues generated abroad, even when the subsidiaries have no staff, this being a requirement to deem that such revenues are business income, and therefore, declare them as being exempt from taxation in Spain.
In both of these cases, the authorities resolved that the application of a rule offering a tax advantage cannot mean that as a result of the literal application of the rule, a situation involving business inefficiency is reached, such as in the case where staff must be hired when, given the business management structure, staff are located at the parent company, and in both cases, the application of the taxation advantage is accepted.