When must be considered that the economic activity of developing renewable energy projects has started?

The approval of Spanish Law on Corporate Income Tax (Law 27/2014, “LIS”), put an end to the debate about whether the application of the exemption set out in article 21 for the capital gain (plusvalía) deriving from the transfer of shares of a renewable energy company required that construction of the project had started or not, so that the company was not considered as an  asset entity (entidad patrimonial) for tax purposes. Such debate had been long and complex in view of the former regulation’s drafting, especially with regard to non-resident entities.

With the new regulation, it seemed clear that if certain assets were dedicated to a specific economic activity, the exemption was applicable to the sale of the company, even if the activity had not started yet. In the renewable energy sector, this circumstance made irrelevant the fact of whether the project had reached ready-to-build (“RTB”) status or was already operating, since the exemption under art. 21 LIS could always be applied when shares were sold.

In fact, the General Directorate of Taxes (Dirección General de Tributos, “GDT”) so ratified in its resolution V2931-16. Such resolution confirmed the application of the exemption to the sale of a subsidiary (sociedad participada) developing solar plants and selling them after having obtained construction permits (i.e. at RTB status).

However, in 2021, GDT’s binding resolution (consulta vinculante) V2265-21 prevented the application of the exemption to the sale of a company, considered as an asset entity, to another company which was developing a solar plant but which had not yet started construction works. Such doctrine implied that the exemption was not to be applied to many sales of vehicle companies (SPV) developing renewable energy projects up to RTB status. It had a clear impact on such project’s profitability, as it is very common for a developer to sell the SPV (at such RTB status, i.e. before starting the project’s construction works).

Recent DGT’s resolution V2200-23, issued after resolution V0863/2023 referring to the gambling sector, employs a different criterion, interpreting that SPV carrying out activities for the promotion or development of solar photovoltaic plants (including pre-feasibility work; land securing; engineering and permitting for construction of the assets) must not be considered as asset entity, as the assets are dedicated to the performance of an economic activity.

Therefore, the exemption of article 21 of the LIS can be applied in such cases. This is good news for developers of renewable energy projects.

However, a careful reading of these three resolutions reveals an important pattern followed by the GDT, which is the relevance of considering the facts and circumstances of each specific case. Indeed, it must be regarded that, in the 2021 resolution, the SPV considered at that time was not to continue with the development of the project, whereas in the 2023 resolution the SPV was to develop the project. Therefore, we understand that the GDT has not change its mind regarding renewable energy projects at RTB status as dedicated to an economic activity, but that the facts considered on a case-by-case basis will determine the application or not of the exemption set out in article 21 of the LIS.

This will become even more relevant when such sales are to be examined by the Tax Inspection, as the application of the exemption will be determined considering the degree of development of the project and the fact of whether the assets owned by the SPV will be subsequently dedicated to the economic activity when the project is completed.

Our recommendation is that, despite this new and more favourable interpretation, the possibility and extent to apply the exemption under article 21 of the LIS is examined based on the circumstances of each sale of SPV.