The Spanish Central Economic-Administrative Court (TEAC), in Resolutions of 20 March 2026 (RG 06015/2024 and RG 06921/2024), has expressly embraced the doctrine laid down by the Supreme Court over the last twelve months on the full-time employee requirement in the activity of property rental. The consequence: the article 27.2 LIRPF requirement can be understood satisfied where personal and material resources are provided by another group entity, provided real functional and economic integration exists between the rental company and the entity supplying the resources.

It is a meaningful turn. For years, the AEAT —with the backing of administrative doctrine— required each rental company within a group to have its own full-time employee. The flexible interpretation now embraced by the TEAC has a direct impact on the qualification of rental as a business activity and, by elevation, on the family-business exemption from Wealth Tax (art. 4.Ocho.Dos LIP) and on the 95 per cent reduction in Inheritance and Gift Tax (art. 20.6 LISD).

The regulatory framework

Article 27.2 of Act 35/2006, of 28 November, on Personal Income Tax (LIRPF), states:

“For the purposes of the preceding paragraph, the rental of immovable property shall be deemed to be carried on as a business activity only where at least one person is employed under a labour contract and on a full-time basis for the management of that activity.”

The provision is the minimum legal condition for rental to qualify as a business activity under IRPF and, in cascade, for shareholdings in rental companies to benefit from the family-business exemption (LIP) and the 95 per cent reduction (ISD), both of which require the entity to have business character —not a wealth-holding character—.

The provision refers to the general concept of business activity, but the reach of the full-time employee requirement in scenarios of family groups with several rental companies has been, for years, one of the most friction-prone inspection focuses.

The Supreme Court doctrine

The turning point is the Spanish Supreme Court judgment 956/2025, of 14 July 2025 (appeal 2197/2023), issued by the Second Section of the Third Chamber. The Supreme Court holds, in the context of Inheritance and Gift Tax, that to apply the family-business 95 per cent reduction it is sufficient to evidence the formal compliance with the requirement of full-time employment, without the Administration being able to add an additional requirement of economic necessity. If there is real full-time employment, the Administration cannot question the sufficiency of the workload.

The doctrine is reiterated and consolidated in STS 637/2026 and 640/2026, of February 2026, issued in relation to members of the same family rental group, and in STS 874/2026. In these rulings the Supreme Court adopts a functional interpretation: when employment is formally located in a group entity other than the holder of the properties, the requirement can be understood satisfied provided there is real unity of resources and activity and the rental company is functionally integrated in that common activity.

The Court thus introduces two elements. First, the recognition of the economic reality of family groups with specialised vehicles —the typical family real-estate holding with rental subsidiaries and a central entity providing administration, management and support—. Second, a material condition: mere formal group membership is not enough; verifiable functional integration must be evidenced.

The TEAC’s embrace

The two TEAC Resolutions of 20 March 2026 carry that doctrine across to the administrative arena. The TEAC expressly acknowledges that its prior criterion —which required an individualised employee per rental subsidiary within the group— has been superseded by the Supreme Court’s case law, and accordingly modifies its doctrine.

The operational point is the following: the TEAC accepts that the article 27.2 LIRPF requirement may be satisfied where personal and material resources are not contracted by the rental entity itself, but by another group entity —typically a management company, a holding with central staff, or the family-group parent company—. The condition is that real functional and economic integration exists: unity of resources, common direction, mutually verifiable support.

The TEAC underscores, in line with the Supreme Court, that mere formal group membership is not enough. The taxpayer will have to evidence the effectiveness of the integration with functional documentation: intra-group service contracts, remuneration for the services rendered, evidence of common direction, operational org charts.

Editor’s view

The change of criterion is welcome and aligns with the economic reality of family real-estate groups. Three critical observations are worth noting.

First, the concept of “functional and economic integration” is open-textured and will open litigation. The strongest line of defence will be to document contractually the provision of intra-group services —property administration, accounting and tax management, tenant attention— with specific remuneration, no flat-rate canon, and to evidence the effective presence and dedication of personnel to the rental activity. The AEAT will continue to reject purely formal compliance.

Second, the doctrine operates within the family-business regime, but, by conceptual symmetry, should also project onto the Corporate Income Tax —classification of the entity as a wealth-holding entity under art. 5.2 LIS— and to IRPF itself for the individual holder receiving income from the activity. The coordinated application of the three taxes should be homogeneous: an entity qualified as active for family-business and CIT purposes should be so as well for the IRPF of the shareholder receiving dividends. Cross-inspections are inevitable.

Third, the TEAC’s change of criterion does not affect already-consolidated situations, but opens a route for rectification of returns in unprescribed periods in which the taxpayer, applying the prior criterion, may have foregone the IP exemption or the ISD reduction. It is worth reviewing planning of the last four tax years and assessing whether to seek rectification under article 120.3 of the General Tax Act.

Practical consequences

For the adviser structuring a family real-estate group, the TEAC Resolutions of 20/03/2026 change the planning landscape.

(i) A full-time employee per rental subsidiary is no longer needed. A single central employee, in a group entity with a property-management function, can satisfy the requirement for all the rental subsidiaries provided real functional and economic integration exists.

(ii) Documenting the integration is the centrepiece of the defence. The customary elements include an intra-group service contract remunerated at market prices (article 18 LIS, related-party transactions), precise description of the services rendered (administration, management, legal support, tenant attention), evidence of the staff allocated and their dedication, common direction documented in minutes, and a coherent documentary flow.

(iii) Review prior waivers. Family rental companies that, under the prior criterion, would have waived classification as active —and thereby the IP exemption or the 95 per cent ISD reduction— may reconsider their position. Rectification is available in unprescribed periods.

(iv) Do not rely on formal group membership. Both the Supreme Court and the TEAC emphasise that mere corporate linkage is insufficient. Planning that does not support verifiable functional integration —empty contracts, unjustified flat-rate canons, nominal staff— will continue to be challenged.

The TEAC doctrine integrates into a coherent line of case law that brings the tax classification of rental closer to the economic reality of family groups. For real-estate wealth structured as a family business, it is one of the most relevant doctrinal shifts in the recent cycle.

Sources

  • TEAC, Resolutions of 20/03/2026, RG 00/06015/2024 and RG 00/06921/2024 (group-level employee in rental): link
  • Spanish Supreme Court, judgment 956/2025, of 14/07/2025 (appeal 2197/2023) — first functional consolidation: link
  • Spanish Supreme Court, judgments 637/2026 and 640/2026, of February 2026 (functional integration of rental group): link
  • Spanish Supreme Court, judgment 874/2026 (reiteration of the doctrine): link
  • Article 27.2 LIRPF — Act 35/2006, of 28 November.
  • Article 4.Ocho.Dos LIP — Act 19/1991, of 6 June.
  • Article 20.6 LISD — Act 29/1987, of 18 December.