TAX LAW DIVISION
The Supreme Court has recently established doctrine on the interpretation of the concept of economic activity in the context of groups of companies engaged in real estate leasing. In particular, Supreme Court Judgment No. 167/2026, of February 17 (appeal in cassation No. 1196/2024), examines whether, for the purposes of applying the family business reduction in the Inheritance and Gift Tax, the requirement of having at least one employee with an employment contract and working full-time—necessary for real estate leasing to be considered an economic activity—can be deemed fulfilled through employees belonging to other companies within the same group.
The issue arises in relation to the 95% reduction provided for in Article 20.6 of Law 29/1987, of December 18, on Inheritance and Gift Tax, applicable to inter vivos transfers of shareholdings in entities between certain relatives. For this reduction to apply, the transferred shareholdings must first qualify for the exemption under Wealth Tax, which requires, among other conditions, that the entity effectively carries out an economic activity.
In the case analyzed, the Tax Administration partially denied the application of the reduction on the grounds that one of the companies in the group, engaged in the leasing of rural properties, did not carry out an economic activity because it did not have at least one employee with an employment contract and working full-time in charge of managing that activity. According to the Tax Administration, the fact that the leasing activity was managed through employees of other companies within the group did not satisfy this requirement.
The Supreme Court analyzes the issue, recalling that Article 4.Eight.Two of Law 19/1991, of June 6, on Wealth Tax refers to the concept of economic activity set out in Article 27.2 of Law 35/2006, of November 28, on Personal Income Tax, according to which real estate leasing is only considered an economic activity when at least one employee with an employment contract and working full-time is used to manage it.
However, the Supreme Court introduces an important nuance when the leasing entity forms part of a group of companies within the meaning of Article 42 of the Commercial Code. In such cases, the Court accepts that the employee requirement may be assessed at group level, provided that the leasing activity is effectively organized using the human and material resources available across the group as a whole.
In particular, the Supreme Court states that the employee requirement must be considered fulfilled when the economic and functional reality of the group shows that there is a genuine unity of resources and activity at group level, such that the leasing company is functionally integrated into the group’s economic activity and the management of the leasing activity is carried out using personnel centralized in other companies within the group.
By contrast, this solution does not apply when group membership is merely formal and there is no genuine economic and functional integration of the leasing activity with that of the other group entities. In such cases, the requirements set out in Article 27.2 of the Personal Income Tax Law must be demonstrated independently by the leasing company itself.
The Supreme Court has reiterated this same criterion in Judgment No. 186/2026, of February 19 (appeal in cassation No. 1326/2024), relating to a substantially similar case.
In short, these rulings introduce an important interpretative criterion for business structures organized as groups. The Supreme Court recognizes that, where there is a genuine unified organization of human and material resources, the employee requirement necessary for leasing to qualify as an economic activity may be assessed at group level.
However, the application of this criterion requires proof of the real integration of the leasing company into the group’s economic activity, and not merely its formal membership in the group.
