The Spanish Directorate-General for Taxation (DGT), in its binding ruling V0565-21 of 11 March 2021, confirms that the transfer by a couple resident in Germany of their entire holdings in a German Kommanditgesellschaft —whose only asset is a property situated in Spanish territory— to a German family foundation (Familienstiftung), executed before a German notary and without alteration of the registered ownership of the property, falls outside the territorial scope of Spanish transfer and stamp tax (ITPAJD). The conclusion is consistent with the literal reading of article 6.1 of the consolidated text of the ITPAJD Act, but it leaves unaddressed two critical issues that the adviser to a contributor with an analogous structure must analyse separately: the potential application of article 314.2 of the consolidated text of the Securities Market Act (LMV) as a specific anti-avoidance rule for indirect transfers of real estate, and the exposure to non-resident income tax (IRNR) on the indirect real-estate capital gain under article 13.1.i.3 of the consolidated text of the IRNR Act (TRLIRNR). The doctrine of the ruling is, therefore, a partial answer that does not exhaust the analysis of the transaction.

It is helpful to begin with the legislative framework, because the transaction operates at the intersection of three distinct tax blocks —ITPAJD, IRNR and German taxes— and because the combined Familienstiftung + KG arrangement is a paradigmatic feature of German intergenerational wealth planning projected onto real estate situated in Spain.

The Kommanditgesellschaft (KG) is the German form of the simple limited partnership. It has no legal personality distinct from that of its partners and operates, for Spanish tax purposes, under the principle of income attribution: the income generated by the KG is attributed directly to the partners in proportion to their interest, without autonomous taxation of the entity. The Familienstiftung —the German family foundation— is, by contrast, an entity with autonomous legal personality, subject to German corporation tax (Körperschaftsteuer) and a characteristic vehicle for the succession planning of family wealth in the German system. The combined KG + Familienstiftung arrangement is a frequent pattern: the KG retains the operational ownership of the real-estate asset; the Familienstiftung acquires the KG interests and consolidates the generational succession without the need to transfer the underlying property directly.

Article 6.1.A) of the consolidated text of the ITPAJD Act, approved by Royal Legislative Decree 1/1993 of 24 September, provides that the tax applies “to onerous patrimonial transfers of assets and rights, of whatever nature, situated, exercisable or to be performed in Spanish territory or in foreign territory, where, in the latter case, the obligor is resident in Spain. The tax shall not apply to patrimonial transfers of real-estate assets and rights situated in foreign territory, nor to patrimonial transfers of assets and rights of any nature which, executed in foreign territory, are intended to take effect outside Spanish territory”. The literal articulation fixes two alternative connecting factors —the location of the transferred asset in Spanish territory or the residence of the obligor in Spain— and expressly excludes transactions executed abroad that take effect outside Spanish territory.

The case under review is paradigmatic and technically clear. The couple, German tax residents, had previously acquired a property in Spain at 50 % each, had contributed it to a German KG —paying ITPAJD under the onerous transfer modality on that contribution— and intended now to transfer to the Familienstiftung the entirety of their interests in the KG. The transaction would be executed before a German notary, without registration in the Spanish Land Registry, because the property would remain registered in the name of the KG. The transfer would be onerous, with no cash consideration, by means of a credit recognised in favour of the couple against the foundation.

The question put to the DGT broke down into three points: whether the transfer was subject to any of the modalities of ITPAJD; whether article 314.2 of the LMV applied; and, where applicable, whether sub-paragraph c) of 314.2 applied with the consequent possibility of staging the transfer.

The DGT’s response is articulated on a single pillar but leaves outside its scope the two remaining issues. The doctrine and the unaddressed zones warrant separate treatment.

First, non-application of ITPAJD on territorial-scope grounds. The DGT formulates the conclusion with technical precision: “to the extent that the KG entity is the legal owner of the property situated in Spanish territory, with that circumstance recorded in the Land Registry —that is, being the registered owner of the property— and the transaction consists of the transfer of the holdings in the German KG entity by the couple to the German private foundation (the requestor), the transaction shall not be subject in Spain to any of the modalities of the Transfer and Stamp Tax, because it takes place outside the scope of application of the tax”. The DGT adds the closing proviso, which is the interpretive safeguard clause: “all of this provided that this transaction does not have effects on the legal ownership of the property situated in Spanish territory, with the KG entity continuing as the registered owner thereof”. The articulation is sound: what is transferred is holdings in a German KG, not the property directly; transferor and acquirer are non-residents in Spain; the transaction is executed before a German notary; the registered ownership of the property is unchanged. The triple territorial disconnection —transferred asset, parties, place of execution— places the transaction outside the scope of ITPAJD by non-application of article 6.1 of the consolidated text.

Second, what the ruling does not address: article 314.2 of the Securities Market Act. The provision, in its current wording under the consolidated text approved by Royal Legislative Decree 4/2015, articulates a specific anti-avoidance rule for transfers of securities that disguise transfers of real estate: the general rule is exemption from ITPAJD and from VAT; but, as an exception, the transfer of securities executed with the intent of evading the tax that would have applied to the transfer of the underlying real estate is taxed under the onerous transfer modality, with that intent presumed —unless evidence to the contrary is provided— in three typical situations enumerated in sub-paragraphs a), b) and c) of 314.2 LMV. Sub-paragraph a) presumes avoidance intent where control is acquired of an entity whose assets are comprised, at least 50 %, of properties situated in Spain not used in business activities. The structure of the case under review —a KG whose only asset is a property in Spain, transfer by the couple of 100 % of their holdings to the Familienstiftung— fits literally the typical case of sub-paragraph a). The ruling does not address it because, having concluded that the transaction falls outside the territorial scope of ITPAJD, no examination of 314 LMV as an exception to the exemption is required. But the issue is not procedurally irrelevant: if the inspection, in a subsequent review, were to consider that the transaction does fall within the territorial scope of ITPAJD —by taking the view that it produces effects in Spanish territory through the registered property— the rule of 314.2.a) LMV would apply fully and the general exemption would fall.

Third, what the ruling also does not address: exposure to IRNR on the indirect real-estate capital gain. Article 13.1.i.3 of the consolidated text of the Non-Resident Income Tax Act, approved by Royal Legislative Decree 5/2004, subjects to Spanish taxation capital gains derived from the transfer of rights or holdings in entities, resident or not, whose assets are mainly comprised, directly or indirectly, of real estate situated in Spanish territory. The provision applies directly to the case under review: the couple, non-residents in Spain, transfer holdings in the KG whose only asset is a property situated in Spain. The transfer is onerous —the couple receives a credit against the foundation. The capital gain, computed as the difference between the acquisition value of the holdings and the transfer value, is subject to Spanish IRNR, unless a tax treaty attributes the taxing right exclusively to the State of residence of the transferor. The Spain-Germany Tax Treaty of 3 February 2011 attributes, in its article 13.4, the right to tax gains derived from the transfer of holdings in entities whose assets consist directly or indirectly by more than 50 % of real estate situated in the other contracting State to the State where the property is situated: Spain. The ruling does not address this point because the question was framed exclusively in terms of ITPAJD, but the practitioner must analyse it separately because there may be IRNR exposure on the indirect real-estate capital gain, without the doctrine of V0565-21 providing any immunity in that respect.

In our view, ruling V0565-21 offers a technically correct response to the question put to it, but it leaves the contributor in suspense. The KG + Familienstiftung arrangement with a Spanish real-estate asset is classic German intergenerational planning that the Spanish tax system does not expressly neutralise but does condition from several angles: the 314 LMV anti-avoidance rule; the IRNR exposure on the indirect capital gain; and, where applicable, the formal filing obligations for non-residents holding Spanish real estate. Planning must, therefore, integrate the three dimensions simultaneously and not rest exclusively on the non-application of ITPAJD that V0565-21 confirms.

Subject to the above, the doctrine signals three operative caveats that warrant separate retention.

First, on the interpretive scope of the safeguard clause of the ruling. The DGT conditions the non-application of ITPAJD on the requirement that “this transaction does not have effects on the legal ownership of the property situated in Spanish territory, with the KG entity continuing as the registered owner thereof”. The clause is operative: if, at some later stage, the Familienstiftung —now as 100 % holder of the KG interests— were to dissolve and liquidate the KG, with allocation of the property in its favour, the consequent registry modification would fully trigger ITPAJD on the transfer of the property. Planning must, therefore, maintain the KG as a stable intermediate vehicle and, where applicable, contemplate the dissolution as a separate taxable transaction whose tax must be settled at that time.

Second, on the risk of 314 LMV anti-avoidance in a possible recharacterisation. The DGT does not address 314 LMV because it concludes that ITPAJD does not apply, but the inspection has discretion, in its review, to recharacterise the transaction if it considers that material effects on the Spanish property do arise. In that hypothesis, the typical case of 314.2.a) LMV —acquisition of control of an entity whose assets are comprised, at least 50 %, of properties situated in Spain not used in business activities— would apply fully, except where evidence to the contrary of the absence of avoidance intent is provided. Planning must contemplate articulating the transaction so that the absence of avoidance intent is documentable: valid economic motives for the generational succession, family planning consistent with German Familienstiftung legislation, absence of an exclusively tax-driven transfer of the underlying property.

Third, on the IRNR exposure on the indirect capital gain and the interplay with the Spain-Germany Tax Treaty. Article 13.4 of the Treaty attributes to Spain the right to tax gains derived from the transfer of holdings in entities whose assets consist directly or indirectly by more than 50 % of real estate situated in Spanish territory. The clause applies literally to the case under review, where the only asset of the KG is a property in Spain. Planning must quantify the IRNR on the capital gain and, where applicable, articulate the timing of the transfer to optimise the tax cost —deferral through reinvestment, staging, evidencing of acquisition value, etc.

The practical consequence is highly relevant for the intergenerational planning of the German contributor with real-estate assets in Spain.

It is advisable, in the first place, to articulate the transaction documentarily with valid economic motives consistent with the succession planning of the Familienstiftung, not as an isolated mechanism for transferring the underlying property. Contemporaneous documentation —Familienstiftung articles of association, family succession plan, KG resolutions, deed of contribution of the holdings to the foundation— constitutes the defensive evidential file against a possible recharacterisation under 314 LMV.

It is advisable, in the second place, to quantify and declare the IRNR on the indirect real-estate capital gain under article 13.1.i.3 of the TRLIRNR in coordination with article 13.4 of the Spain-Germany Treaty. Omitting the declaration on the basis that the transaction falls outside the Spanish tax perimeter —relying exclusively on the ITPAJD doctrine of V0565-21— would be a procedurally relevant error, subject to surcharge and, where applicable, penalty.

It is advisable, in the third place, to maintain the KG as a stable intermediate vehicle during the period in which the Familienstiftung manages the assets. A possible later dissolution of the KG with allocation of the property to the foundation —or to its beneficiaries— would trigger a new autonomous taxable transaction under ITPAJD and, where applicable, under IRNR, with separate tax settlement that the doctrine of V0565-21 does not anticipate.

In conclusion, what this ruling of the Directorate-General for Taxation makes clear is that the KG + Familienstiftung arrangement as a vehicle for German intergenerational planning over a Spanish real-estate asset finds a place in the Spanish tax system, without ITPAJD exposure on the foreign transfer of the holdings to the foundation, provided that the extraterritorial conditions of the transaction are respected and the registered ownership of the property is not altered. But the doctrine of the ruling is, deliberately, partial: it leaves outside its scope the 314 LMV anti-avoidance rule and the IRNR exposure on the indirect real-estate capital gain, two operatively decisive issues that the adviser to a German contributor with an analogous structure must analyse separately and integrate into the planning. V0565-21 opens a door; it does not close the transaction.

Sources

  • Directorate-General for Taxation, binding ruling V0565-21 of 11 March 2021, Sub-Directorate-General for Wealth Taxes, Fees and Public Prices: petete.tributos.hacienda.gob.es.