The Spanish tax authorities reiterate, in two new tax rulings, that a leasing entity can outsource the management of assets to third parties without qualifying as a passive asset-holding company

In two recent tax rulings, not yet published and obtained by Ashurst for two of our clients, the Spanish Directorate of Taxes (the "Tax Authorities") has reiterated, in relation to two very different factual cases, that a leasing entity that meets the full-time employee requirement by outsourcing to a third-party professional management entity, meets the legal requirements to be considered as carrying out a business activity. Therefore, such entity shall not be deemed a passive asset-holding company for the purposes, among others, of applying the participation exemption on the gain to be obtained on the sale of its shares.

As we already mentioned in our Newsflash of 29 April 2024, following the publication of tax ruling V0090-24, the Tax Authorities take up again the doctrine that they had repeated many times in the past, but had not reiterated since 2008, according to which the economic reality shows business situations in which entities with relevant real estate assets for whose management at least one employee would be required, may opt to hire third party companies specialized in real estate management.

Description of the facts

The two cases on which the Tax Authorities have now ruled are very different from each other, being, in one case, a lease of hypermarkets in favour of a single tenant per asset and, in the other, a lease of a multi-tenant office building. The facts and circumstances of both cases are described below:

• Lease of hypermarkets:
  
  Several hypermarkets were acquired with the aim of leasing them. The acquisition was carried out, as is usual in the real estate sector, through various independent subsidiaries, all of which were wholly owned by a holding entity which is the head of the real estate investments of one of the investment funds managed by an international fund manager. These hypermarkets are distributed in different geographical areas of Spain. Given the structure of the group in Spain, the size of the investment and the complexity of the management and operation of the hypermarkets, the holding entity outsourced the management activities of the subsidiaries and hypermarkets, as well as the real estate management, both to a management company under an Asset Management Agreement and to another company that provides real estate services on a professional basis under a Property Management Agreement.
  
  The tasks of the asset manager include, inter alia: (i) management and supervision of the hypermarkets and subsidiaries; (ii) preparation of an operational and strategic business plan on a consolidated basis; (iii) budgeting and performance evaluation; (iv) supervision of external suppliers and transition to new suppliers, if necessary; and (v) development of leasing and marketing strategies. The tasks provided by the property manager include, inter alia: (i) provision of technical management, operational management, invoicing and rent collection services; (ii) maintenance of databases; (iii) coordination work; (iv) fit out and refurbishment of premises; and (v) provision of assistance and advice services in renegotiation processes with tenants.

• Lease of an office building:
  
  A company acquired a significant office building with the aim of leasing it to several tenants. In view of the need for professional management of the building, due to its importance and complexity, it was decided to outsource the management of the leases to a professional property manager who will be responsible for: (i) recommending the strategy to be followed in relation to the available offices; (ii) preparing the marketing plan; (iii) supervising, monitoring and assisting legal advisors in charge of drafting the lease agreements; (iv) negotiating the terms of the leases with potential clients; (v) preparing the strategy in relation to the updating of the rents; (vi) providing a service for the collection of the real estate rents; (vii) keeping the accounting books; (viii) managing and supervising the maintenance of the property; (ix) paying taxes; (x) preparing business plans and quarterly reports on the supply and demand of the property market; (xi) preparing periodic reports including available offices; (xii) proposing marketing initiatives; (xiii) taking out insurance policies; and (xiv) handling all claims and preparing periodic reports on the financial situation of the business.

Conclusion of the Tax Authorities

The above circumstances are taken into account by the Tax Authorities to conclude in both cases that "based on the data provided, the requirements indicated in article 5.1 of the Spanish Corporate Income Tax Act could also be considered to be met, for the purposes of determining that the consulting entity carries out an economic activity, even though the material and human resources necessary to intervene in the market are not its own but outsourced to entities outside the corporate group".

Final remarks

In these two tax rulings the Tax Authorities consolidated the doctrine taken up in tax ruling V0090-24, and applied it to two different factual cases, in terms of the typology of asset and lease strategy. However, there is a clear common and differentiating element in these three cases: the nature of the investor, since, in all cases, they are professional investors who carried out very significant real estate investments and who, for economic reasons, decided to outsource the administration of their assets to specialised third parties for reasons of efficiency, organisation and management. In these cases, despite the legal requirement of a full-time employee, there is no doubt that these investors carry out a real economic activity, a point that seems to be shared by the Tax Authorities.

In any case, although these tax rulings have consolidated the doctrine of the Tax Authorities regarding the possibility of outsourcing the management of real estate to third parties without being considered a passive asset-holding company, as they are based on very specific factual elements, we understand, once again, that it is necessary to analyse on a case-by-case basis their applicability to other factual cases, and, where necessary, the appropriate preventive measures should be considered (whether it be hiring an employee, requesting a specific tax ruling from the Tax Authorities or, for example, taking out an insurance policy for tax risks).