Why a share buyback can be considered artificial

The Spanish Tax Agency has published the Conflict Report No. 22, which analyzes a transaction between a company and an individual shareholder that, at first glance, might have seemed routine… but was ultimately considered clearly artificial with the sole objective of tax savings.

The case in simple terms: two steps that raised suspicions

The report examines a structured transaction as follows:

1. The company bought back its own shares from an individual shareholder.
2. It then carried out a capital reduction, cancelling the acquired shares.

The shareholder reported the transaction as a sale of shares, generating a capital gain to which she applied the from the Ninth Transitional Provision of the Personal Income Tax (IRPF).

This strategy allowed paying less tax than if a direct capital reduction with refund of contributions had been carried out, which is taxed as investment income.

 

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Why does the Tax Authority say the transaction is artificial?

The Advisory Commission, applying Article 15 of the General Tax Law (LGT), concludes that:

• The transactions, considered as a whole, do not have significant real economic effects beyond the tax savings.
• A “normal” operation would have been simply a capital reduction with a return of contributions, without the need to buy back the shares first.
• The structure created is “clearly artificial and improper,” designed solely to obtain a tax advantage.

In other words: an unnecessary detour was created to pay less tax.

How does the Tax Authority reach this conclusion?

To reach this conclusion, the Commission relied on a series of key indicators, similar to those established by Supreme Court jurisprudence:

• Extreme temporal proximity: the purchase and capital reduction agreements were executed on the same day.
• Family connections: the company was entirely controlled by members of the same family, facilitating the orchestration of such structures.
• Existence of undistributed profits: the company had high reserves and accumulated profits, showing that funds were available for distribution.
• Absence of a real economic purpose: there was no evidence that the transaction had any business purpose other than the mere return of funds to the partner.
• No significant change in control: after the transaction, the other partners’ ownership percentages barely changed, keeping family control intact.

In short, the Spanish Tax Agency (AEAT) considers that a single operation (return of contributions) was artificially divided into two steps to force a more favorable taxation.

What happens when the Tax Authority declares a conflict in the application of the rule?

When this occurs, the AEAT may apply Article 206 bis of the LGT, which regulates conflicts in the application of the law and allows it to:

• Invalidate the operation for tax purposes,
• Demand the correct tax due,
• Charge late payment interest, and
• Impose a specific penalty.

What this report means for company shareholders and SMEs

This guidance affects anyone or any company considering:

• reorganizing their stake in the company,
• transferring shares between partners,
• executing treasury share operations,
• returning contributions or reducing capital,
• tax planning gains or withdrawals.

The message is clear:
The Tax Agency will analyze the real intent and the full sequence of steps, not just the isolated invoice or deed.

If the transaction economically resembles a capital reduction, it must be taxed as such, even if a different formal structure is used.

How can I avoid risks with the Tax Agency?

At Adlanter, we recommend considering the following points before carrying out a significant corporate transaction:

Ask yourself: Does it make real business sense?

Every operation must be justifiable beyond tax savings: economic reasons, operational reorganization, entry or exit of shareholders, professionalization, etc.

Avoid unnecessarily complex structures

The more sophisticated the transaction without justification, the higher the risk of audit.

Document everything

Meeting minutes, economic reports, share valuations, reasons for the transaction…
Form matters, but the why matters more.

Consult a specialized advisor

These decisions affect personal income tax, corporate tax, wealth tax, share valuations, and compliance with anti-fraud regulations.

At Adlanter, we make these operations understandable, transparent, and secure to prevent future issues.

Conclusion: clarity and prudence to avoid conflicts with the Tax Agency

Conflict Report No. 22 is a clear example of how the Spanish Tax Agency is strengthening its oversight of transactions that, under formal appearance, aim to reduce taxation through advantageous fiscal mechanisms.

This does not mean you cannot plan your fiscal decisions, but you must do it properly, with transparency, solid business reasons, and expert advice.

At Adlanter, we help you make corporate decisions with peace of mind and no risks, combining specialized tax advice, review of transactions between shareholders, and personalized planning so that every move aligns with regulations and your objectives.

Our team analyzes your case, proposes the most efficient alternative, and accompanies you throughout the process so that you act with security, transparency, and confidence.