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Introduction

The tax regime applicable to family businesses under the Capital Gains Tax (hereinafter, “CGT”), and in particular, the exemption for shareholdings in group entities, is of great practical importance, as it directly influences how business assets are organized and managed.

Until recently, there were interpretative doubts about how to prove certain requirements set forth in the Spanish CGT Law in order to apply this exemption. A recent Judgment by the High Court of Justice of the Balearic Islands (Judgment No. 200/2025, dated May 5th, 2025) represents a paradigm shift for taxpayers and provides clarity on the validity of the “indirect exercise” of management functions.

Scope of the exemption

The Spanish CGT Law establishes that shareholdings in family group entities shall be exempt when, among others, two essential conditions are met:

  • That one of the members of the family group exercises management functions within the entity.
  • That the remuneration received for these functions accounts for more than 50% of that individual’s total income from business, professional, and employment activities.

This exemption benefits the entire family group (spouse, ancestors, descendants, and relatives up to the second degree), making the interpretation of these requirements a key issue in estate and succession planning.

Recent judgment by the High Court of Justice (TSJ) of the Balearic Islands

The recent Judgment by the High Court of Justice of the Balearic Islands (Judgment No. 200/2025, dated May 5th, 2025) marks a significant setback for the Spanish Tax Agency. It recognizes that the exemption established in Article 4.Eight.Two.c) of the CGT Law may apply even when management functions are carried out through an intermediary company, provided that the actual performance of such services is duly proven.

The SASGA-FRASA case: the dispute over “indirect exercise”

The case decided by the TSJ arose from an action by the regional tax authority (ATIB) (the “Authority”), which denied the CGT exemption for shareholdings in the company SASGA to a taxpayer and his family. The reason: it claimed that the remuneration received by the taxpayer’s brother, who exercised management functions, did not meet the 50% income threshold required under the CGT Law, since part of the compensation was paid through another company, FRASA, which he wholly owned.

The tax inspection argued that these amounts could not be considered because they came from a different entity. However, the taxpayer provided documentary evidence (bylaws, family agreements, and service contracts) showing that FRASA invoiced SASGA precisely for the management services performed within SASGA.

The Court’s Decision

The TSJ overturned the Authority’s position and upheld the taxpayer’s argument, acknowledging that management functions can validly be performed through a holding or intermediary company within the group, as long as it is shown that the remuneration genuinely derives from such functions.

In this case, the total compensation received, both directly from SASGA (€ 14,601.60) and via FRASA (€ 18,921.84), clearly exceeded the 50% threshold of the family member’s total income, thereby meeting the requirements of the CGT Law.

Practical Implications

The judgment consolidates a taxpayer-friendly interpretation for family businesses by allowing the “indirect exercise” of management functions to qualify for the CGT exemption. This entails:

  • Greater organizational flexibility: Family groups may structure their management bodies through service companies without losing their right to the CGT exemption.
  • Increased legal certainty: This ruling strengthens previous administrative doctrine (binding opinions V0810-18, V0158-14, and V1863-17), now judicially confirmed, in contrast to the increasingly restrictive and inconsistent criteria applied by the Spanish Tax Authority.
  • Succession planning: The CGT exemption remains a key tool in facilitating the intergenerational transfer of business assets.

Although the judgment refers to a specific case, its reasoning is applicable to similar situations and constitutes an important precedent in the interpretation of Article 4.Eight.Two.c) of the CGT Law. Going forward, the critical factor will be the robust documentation of the actual provision of services and the legitimacy of the related remuneration, regardless of the organizational structure chosen by the family group. It is therefore advisable for family businesses to carefully structure and document internal agreements, contracts, appointments, and compensation arrangements, not only to ensure compliance with the law but also to strengthen their position in the event of tax audits.

In conclusion, this recent judgment reinforces the principle of organizational neutrality and provides greater legal certainty for family businesses in an environment of increasing tax pressure. It is encouraging to see the courts stepping in to correct the Tax Authority’s increasingly restrictive and confiscatory approach, ensuring that exemptions such as this one are applied consistently and rigorously, in line with their intended purpose, and providing family businesses with a stable framework that supports their continuity and growth.

 

 

Julio González

Vilá Abogados

 

For more information, contact:

va@vila.es

 

26th of September 2025