Legal development

Participation exemption applies to the transfer of Ready to Build photovoltaic projects, as confirmed by the Spanish Tax Authorities

solar power farm

    The Spanish General Directorate of Taxes has confirmed in a recently published binding tax ruling (V2200-23, dated 26 July 2023) that the capital gains obtained on the transfer of Spanish entities engaged in development of photovoltaic projects (the "SPVs") at Ready to Build phase or at an earlier stage, are entitled to the participation exemption regime to the extent that the SPVs have carried out preparatory steps prior to the start of the construction of the solar plant, as it understands that the SPVs are not passive asset-holding entities. This seems to be a change of criteria with respect to its previous tax ruling V2265-21, dated 12 August 2021.

    In the analysed case, the projects were in the initial promotion phase and the SPVs had no human resources hired to carry out this activity, having outsourced all the works consisting of searching for suitable land, carrying out technical and economic feasibility analyses of the land, negotiating lease or surface right contracts, interconnection to the grid, carrying out an environmental impact project and identifying and managing all the permits and licences necessary for the construction of the solar plant.

    The controversy subject of discussion in recent years was the consideration of such SPVs as passive asset-holding entities, since, if they were considered as such, the 95% exemption on capital gains derived from the transfer of the shares in the SPVs could not be applied. In particular, the aforementioned tax ruling V2265-21 had considered that the preparatory activities prior to the material start of the construction of the solar plant did not represent the start of the development of an economic activity, and therefore the SPVs were considered, under this previous criteria, to be passive asset-holding entities until the start of the construction works.

    The Spanish Directorate General of Taxes has now ruled on this point, concluding that the SPVs already carry out an economic activity during the promotion phase "to the extent that the activity carried out by these entities determines the existence of an organisation, on their own account, of means of production or human resources, their own or those of third parties, for the purpose of intervening in the production or distribution of goods or services on the market", and therefore they are not considered as passive asset-holding entities, since their assets would be devoted to the development of an economic activity.

    Final remarks

    The Spanish Directorate General of Taxes seems to settle the discussion initiated in 2021 as a result of the aforementioned controversial tax ruling, thus facilitating the divestment in renewable projects through share deals.

    Although this criteria is binding for the Tax Inspectorate in similar scenarios, the recently published tax ruling bases its conclusions on very specific factual circumstances, which are very detailed therein, so that a case-by-case analysis will be necessary to confirm the applicability of this criteria to other cases.


    In Ashurst's Madrid office we have extensive experience in advising, together with our Energy Department, on the tax aspects of investments and divestments in renewable energy projects, as well as in the prevention and resolution of tax disputes before the different Administrations, all of which places us in an unbeatable position to advise our clients in relation to this type of projects.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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