Article 29.1 of the Spanish Corporate Tax Act (Ley del Impuesto de Sociedades) (LIS) anticipated an interesting fiscal incentive for newly created entities, consisting of the application of a reduced rate of 15% in the first tax period in which the tax base is positive and in the following period. However, the rule explicitly excludes the application of the reduced rate when:
(i) The economic activity of the new company had been previously carried out by related people or entities and is transferred to the new company;
(ii) The activity had been exercised in the prior year by a natural person that holds, directly or indirectly, more than 50% of the new company’s capital;
(iii) The new company belongs to a corporate group in the sense laid out in Article 42 of the Spanish Code of Commerce (hereinafter, “CCom”); and
(iv) When the new company is considered an asset-holding entity.
This analysis focuses on the third of these premises: the impermissibility of applying the reduced rate when the company belongs to a corporate group. Specifically, it examines if the existence of a group should be noted when the newly created company is controlled by a natural person who, in turn, controls other entities.
The legislator’s intention in excluding the reduced rate for companies belonging to a corporate group is to prevent fraud or abuse. In particular, the aim is to prevent a preexisting activity from continuing under the guise of a newly formed entity that belongs to a group. Without this limitation, nothing would prevent the same businessperson from being able to carrying out their commercial activities through various companies, which would be established successively every two years, benefitting indefinitely from the reduced corporate tax rate. Article 42 of the CCom defines a corporate group on the basis of “control”, which occurs when a company holds or can hold, directly or indirectly, the control of another company. The literal interpretation of this article thus demands that for a corporate group to exist, the subject holding control of the group’s constituent entities is a company. Accordingly, based on a strict interpretation of that prevision, in principle, a corporate group would not be considered when the control is exercised by a physical person and not by a trading company. However, the Spanish Supreme Court has noted that the reference to control broadens the notion of a group beyond cases of organic control, that is, in cases where the parent company holds a majority stake in the share capital or in the administrative body of the subsidiary companies. This concept also covers cases of indirect control, like those arising from the acquisition of rights or the conclusion of contracts that give the parent company the ability to exercise decisive influence on financial and commercial policy, as well as on the decision-making processes of the board.
In areas such as public contracting or insolvency, the Spanish Supreme Court has already clarified that, to gauge the existence of a corporate group, it is not necessary for whoever exercises or may exercise control to be a trading company. Therefore, if control does exist in the terms of Article 42.1 of the CCom, it would be irrelevant whether a commercial company or another entity, such as a natural person, is at the top of the group.
Specifically in relation to the concept of a “corporate group” under Article 29.1 of the LIS (application of the reduced corporate tax rate for newly created companies), the Spanish Supreme Court has not yet ruled.
However, in 2024, the Andalusian High Court (Tribunal Superior de Justicia de Andalucía) (TSJA) analysed a case where the appropriateness of applying the reduced rate on a newly created company controlled by a natural person who, in turn, controlled other companies in which he also indirectly held a majority stake was being debated.
The TSJA upheld the tax administration’s criteria, which understood the following:
“The identity of the partners and administrative bodies, together with the concurrence of the facts and all other related circumstances, determines that there is participation in operational decisions, demonstrating control over the actions of various entities. As a result, with sufficient justification, it is concluded that a situation of control exists and, therefore, a corporate group, in the terms of Art. 42 of the Spanish Code of Commerce which prevents the application of the reduced rate”.
As a result, the TSJA’s judgement concluded that, given that a natural person was a partner – albeit indirectly – and director in the companies, a corporate group existed in the terms of Article 42 of the CCom, which prevented the application of the reduced corporate tax rate.
The judgement was appealed and the Spanish Supreme Court admitted the appeal for consideration. In its order to admit the case, the Spanish Supreme Court noted that although it has already ruled on the concept of a “corporate group” in other areas (see the judgments cited), such rulings are specifically limited to those contexts, and therefore the same reasoning cannot be automatically applied to the case concerning the application of the reduced corporate income tax rate for newly created companies. In short, it remains for the Spanish Supreme Court to determine what should be understood by “corporate group” for the purposes of Article 29.1 of the LIS.
Overall, the arguments put forward by the TSJA seem consistent with the interpretation that the Supreme Court has been applying to Article 42 of the CCom in other areas. Therefore, in the opinion of the undersigned, there are well-founded reasons to anticipate that the future ruling of the Supreme Court could confirm the criterion upheld by the TSJA.
Joan Lluís Rubio
Vilá Abogados
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27th of February 2026
