Family Business: What Is Changing in One of the Key Requirements to Access Certain Tax Benefits

Family business taxation remains one of the areas that requires the most planning from both a wealth and corporate structuring perspective. In particular, certain business structures engaged in real estate leasing have long been subject to a particularly strict interpretation of one of the legal requirements needed to access significant tax benefits in areas such as the Wealth Tax and Inheritance and Gift Tax.

However, several recent rulings appear to point towards a more flexible and less formalistic interpretation of this requirement, potentially creating new opportunities for review for many family businesses with complex corporate structures or centralised management models.

The Full-Time Employee Requirement: A Key Element in Family Business Taxation

Tax regulations establish that, for a real estate leasing activity to be considered an economic activity, there must be at least one employee under an employment contract working full-time.

This requirement, set out in Article 27.2 of the Spanish Personal Income Tax Law (IRPF), is crucial because it directly affects access to certain tax benefits available to family businesses, particularly:

• The exemption from Wealth Tax.
• The application of tax reductions on transfers subject to Inheritance and Gift Tax.

In practice, this requirement has traditionally been subject to very restrictive interpretations by the Spanish Tax Authorities, leading to numerous disputes during tax audits and inspection procedures.

 

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The Spanish Supreme Court Relaxes the Requirement Regarding Who Must Hire the Employee

One of the most significant developments comes from the Spanish Supreme Court, which has recently overturned the position traditionally maintained by the Tax Authorities regarding the hiring of the employee required by law.

Until now, the Tax Authorities had argued that the employee had to be hired directly by the company that owns the leased properties. This frequently created difficulties for business groups and family businesses that operate through centralised structures, where administrative and personnel management is often concentrated within a single company providing services to the rest of the group.

However, the Supreme Court has confirmed that this requirement may still be deemed fulfilled even if the employee is not formally hired by the leasing company, provided that there is a genuine economic and functional integration within the business group.

In other words, economic reality is beginning to prevail over corporate formalism.

The TEAC Introduces a More Reasonable Approach to Documentary Evidence

At the same time, another recent ruling by the Central Economic-Administrative Court (TEAC) provides a second important clarification.

In this case, the discussion was not about who hired the employee, but rather how to properly demonstrate that the employee existed and met the legal requirements.

During a tax inspection procedure, the Tax Authorities challenged the application of certain tax benefits, arguing that the evidence provided by the taxpayer was insufficient to prove the effective employment of a full-time worker.

The matter ultimately reached the TEAC, which concluded that, where sufficient documentation exists to evidence the employment relationship — such as social security contributions, payroll records, employment history reports or other employment and tax documentation — the taxpayer cannot be required to additionally justify the economic necessity or workload that led to the hiring of the employee.

This interpretation is particularly significant because it limits the discretionary approach previously applied by the Tax Authorities in these types of proceedings.

What Practical Implications Could This Case Law Development Have?

Although neither of these rulings removes the legal requirement to have at least one full-time employee, they clearly reflect a trend towards a more flexible interpretation of how this requirement should be met and evidenced.

From a practical perspective, this may be particularly relevant for:

• Family businesses with real estate holding activities.
• Corporate groups with centralised services.
• Family holding company structures.
• Corporate reorganisation processes.
• Long-term succession and wealth planning strategies.

In many cases, structures designed conservatively out of concern for losing certain tax benefits may now warrant reconsideration in light of this evolving interpretation.

A Good Time to Review Wealth and Corporate Structures

The tax regime applicable to family businesses continues to be a highly technical area, where small issues relating to corporate structuring or regulatory interpretation can have a very significant impact from a wealth planning perspective.

The recent rulings of the Supreme Court and the TEAC appear to reinforce a more business-oriented approach aligned with economic reality, moving away from overly formalistic interpretations that have generated considerable legal uncertainty for many years.

In this context, it is advisable to review certain business or wealth structures to assess whether they remain tax-efficient and continue to comply correctly with current legal requirements.

Do You Need to Review Your Family Business Tax Structure?

At Adlanter, we support family businesses, corporate groups and business owners in tax planning, corporate reorganisations and the review of complex business structures.

If you would like to assess how these new criteria may affect your current structure or explore potential optimisation opportunities, our specialist team can help you.