The High Court of Justice of Catalonia, in its judgment of 29 December 2025 (Contentious-Administrative Chamber, First Section, judgment no. 4794/2025, appeal no. 1432/2023, rapporteur Ms Laura Mestres Estruch), confirms a doctrine with direct impact on intergenerational estate planning: negative income from economic activities other than the entity whose participations are sought to be exempted is not included in the denominator of the 50% management-functions calculation required by the family-business exemption.

It is helpful to begin with the legislative framework. Article 4.Eight.Two of Law 19/1991, on the Net Wealth Tax (LIP), exempts from taxation the participations in entities where several cumulative requirements concur. Among them, that the taxpayer effectively performs management functions in the entity and receives for that remuneration that represents more than 50% of all of his or her business, professional and personal-work income. For the purposes of that calculation, the rule itself expressly excludes the income derived from the very entity whose participations are exempted.

The case under review reflects the usual profile of family-business litigation. The decedent was the holder of participations in the company Klonkis, S.L.; performed management functions in the entity; and obtained, in parallel, other income: a salary as warehouse manager in a different company and a retirement pension. He also carried out an independent economic activity —signage and screen-printing— that generated recurring losses.

The procedural disagreement arose from the calculation rule. The heirs —Net Wealth Tax taxpayers for the decedent’s 2014-2016 tax periods— argued that all the decedent’s income should be integrated, by algebraic sum, into the denominator of the 50% quotient, including the losses from the independent signage and screen-printing activity. Under that reading, the denominator decreased and the quotient —the remuneration for management functions in Klonkis— exceeded 50%, with the consequent application of the exemption.

The Territorial Inspection of the Generalitat de Catalunya rejected that reading and issued the corresponding assessments. The Regional Economic-Administrative Tribunal of Catalonia, in its decision of 16 March 2023, partially upheld the contributor’s claims and accepted the inclusion of negative income in the denominator. The Catalan Tax Agency appealed against that decision before the TSJ.

The High Court upholds the appeal of the regional Administration and consolidates a doctrine based on four considerations that warrant unfolding.

First, the purpose of the regime. The family-business exemption, introduced by Law 22/1993, seeks to fiscally protect genuine family businesses —those constituting the main source of livelihood of the contributor— and to prevent the benefit from applying to mere wealth-holding vehicles. The measurement of that economic dependence is articulated through the 50% threshold.

Second, interpretive coherence. The inclusion of negative income in the denominator, by algebraic sum, leads to results that the Court describes as manifestly absurd: quotients greater than 100% or of negative sign. Those results denature the purpose of the provision and contravene the interpretive principle of article 3.1 of the Civil Code.

Third, the literal wording of the rule. Article 4.Eight.Two of the LIP uses the term “income” in a context tied to “remuneration received”, which orients the calculation towards magnitudes generating real income and excludes negative magnitudes, which express the absence of income, not its existence.

Fourth, the parallelism with other taxes. In the Personal Income Tax, article 32 of the LIRPF reserves the income reductions for those of positive sign. Where the legislator wishes to compute negative results, it expresses it clearly, a circumstance that does not concur in article 4.Eight.Two of the LIP.

Applied to the specific case, the decedent’s remuneration for management functions in Klonkis, S.L. represented 34% of his income in 2014, 33% in 2015 and 35% in 2016 —figures below the required 50% threshold in all tax periods—. The legal requirement did not concur and the exemption did not apply.

The Court adds a datum of systemic relevance. The Chamber and Section had itself already ruled on identical questions in prior proceedings (nos. 1082/2022 and 283/2023), concerning the same family group and the same company. The judgments issued in those cases were the subject of a cassation appeal whose admission was rejected by the Spanish Supreme Court by Order of 12 November 2025, which entails the consolidation of the criterion.

In our view, the doctrine of the Catalan Chamber is coherent with the logic of the family-business regime. The 50% threshold operates as an instrument for measuring the real economic dependence of the contributor on the family business. To allow losses from other economic activities to artificially distort that measurement —reducing the denominator until the quotient exceeds the threshold, even in negative-sign scenarios— would amount to emptying the requirement of content.

The practical consequence is relevant for intergenerational estate planning. Where the taxpayer carries out more than one economic activity —in addition to the management functions in the entity whose participations are sought to be exempted—, it is advisable to prepare an individualised calculation of the 50% quotient that (i) excludes from the denominator the income derived from the entity whose participations are exempted, in accordance with the literal wording of the provision; and (ii) also excludes negative income from other economic activities.

The contemporaneous documentation of that calculation —payslips with breakdowns, certificates from the company concerning the management functions and their remuneration, personal income tax returns for the tax period— constitutes the best defensive tool in case of administrative verification. And it also allows for an early assessment of whether the exemption effectively applies or whether the wealth structure should be reoriented before the chargeable event.

In conclusion, what this new judgment of the High Court of Justice of Catalonia makes clear is that the calculation of the 50% management-functions threshold in the family-business exemption regime must be carried out exclusively on positive income, without integrating losses from other economic activities, a criterion consolidated after the cassation rejection by the Spanish Supreme Court and fully transferable to the succession planning of family wealth.

Sources

  • High Court of Justice of Catalonia, Contentious-Administrative Chamber, First Section, judgment no. 4794/2025 of 29 December 2025, appeal no. 1432/2023 (ECLI:ES:TSJCAT:2025:9610), rapporteur Ms Laura Mestres Estruch: poderjudicial.es.
  • Spanish Supreme Court, Contentious-Administrative Chamber, Order rejecting cassation of 12 November 2025 (against previous judgments of the same Chamber and Section, proceedings 1082/2022 and 283/2023).