Use of a Spanish holiday property owned by a Spanish company may result in taxable profit distributions in Germany.

On 12 June 2013, the Federal Fiscal Court (BFH) ruled that the use of a Spanish holiday property in Germany can lead to significant income tax liabilities, namely when the property is owned by a Spanish corporation and its shareholders, who use the property, reside in Germany.

Until 1 January 2007, the so-called Sociedad Patrimonial (asset-holding company) in Spain was subject to special taxation. At that time, the acquisition of real estate in Spain through a Spanish Sociedad Limitada (S.L. – similar to the German GmbH) appeared to be a useful means of avoiding high taxes on the sale of real estate in Spain. This tax model was often recommended for the alleged avoidance of Spanish inheritance tax. In some cases, the interposition of the Spanish company was intended to prevent creditors from gaining access to the property.

Acquiring a property in Spain through an S.L. resulted in the holiday property being owned by the company, but available to shareholders and their family members all year round. Thanks to the special taxation of the Sociedad Patrimonial, the use of the property in Spain by shareholders, which could be considered a hidden profit distribution of the company, was not subject to Spanish income tax. However, if the shareholders were not resident in Spain, but in Germany, these profit distributions were subject to German income tax in accordance with the double taxation agreement between Spain and Germany. However, only a few shareholders of Spanish asset-holding companies were likely to have declared these profits to the German tax authorities.

With the Law 35/2006, the above-mentioned tax advantages of the Sociedad Patrimonial were abolished as of 1 January 2007. Owners of Spanish asset-holding companies were well advised to take advantage of a transitional provision and dissolve the company.

In the case decided by the BFH, it concerned a German family – the parents and their two children – who had acquired a 1,000 sqm property in Porto Andratx on Mallorca, including a 160 sqm single-family home and a swimming pool, for approximately 2.4 million DM in 2000 through a Spanish company. The tax office assumed that the use of the property by the family resulted in taxable hidden profit distributions from the company to its shareholders. Specifically, for the years 2001 to 2005, this amounted to estimated rental costs plus a profit surcharge of approximately EUR 78,000 per year. The BFH upheld this assumption by the tax office in principle.


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