Tax, Accounting and Legal Analysis of Selling 100% of a Property-Holding SLU

Main risks, transaction strategies and final legal recommendations

1. Valuing a company that owns real estate

a) Accounting and asset information (example)

• Net assets: €300,000
• Tangible fixed assets (property), book value: €75,400
• Cadastral value of the property: €120,000
• Financial investments and long-term receivables: €250,000 (including bad debts)
• Profit or loss for the year: –€2,000

Observation: The book value is significantly below the possible value of the real estate asset, as indicated by its cadastral value, and potentially below its market value. This creates a risk of tax adjustment. An independent valuation report should reflect the company’s market value, taking account of its inactivity and the impairment of bad debts.

b) Adjusted valuation

If the Tax Administration revalues the property based on its cadastral value, the company’s tax net assets could increase:

• Fixed-asset adjustment = cadastral value – book value = €120,000 – €75,400 = €44,600.
• Revalued net assets = €300,000 + €44,600 = €344,600.

2. Preparing and negotiating the transaction

a) Documentation and due diligence

• Information memorandum: Include company details, history, inactivity and bad-debt information.
• Due diligence: The buyer will review accounting, tax and legal matters.
• Costs: Depending on complexity, advisers’ fees generally range from €3,000 to €15,000.

b) Price negotiation

• Agree a sale price that is consistent with the company’s actual position.
• Example: If the proposed price were €280,000 while revalued net assets stood at €344,600, the Tax Agency could challenge the transaction and make adjustments.

3. Completing the sale

a) Drafting and signing the share purchase agreement

• Share purchase agreement: It should cover the price, payment terms, warranties, adjustment clauses and other relevant terms.
• Notary and Commercial Registry:
  • Notarial fees: approximately €500–€3,000, depending on the amount and complexity.
  • Registry fees: approximately €200–€1,000.

b) Additional costs

• Broker or intermediary fees, generally a percentage of the sale price if they take part in the negotiations.

4. Tax implications

a) For the seller (shareholders and company)

Corporate Income Tax

• Capital gain or loss:
  • If the shares are sold for €280,000 and revalued net assets are €344,600, the example would produce a tax loss of €64,600.
  • That loss may be offset in future tax years, subject to Corporate Income Tax rules.
• Adjustment risk:
  • If the price is below market value, the Tax Agency could revalue the transaction and attribute a notional capital gain.
  • A robust valuation report would help support the negotiated price.

Shareholders’ Personal Income Tax (IRPF)

• The sale of shares gives rise to a capital gain or loss in the savings tax base.
• Example: If the shares’ tax cost were €320,000 and they were sold for €280,000, the €40,000 loss could be offset against future gains.

b) Other taxes

Transfer Tax (ITP)

• The transfer of company shares is generally exempt.
• A risk may arise if the Tax Agency reclassifies the sale as an indirect transfer of real estate.

Municipal capital gains tax

• It is not normally due on a share sale.
• If the transaction is treated as an indirect sale of the property, the local authority could raise a claim.

5. Alternatives to improve the tax position

a) Direct sale of the property followed by liquidation of the company

• The property can be negotiated separately under the rules applicable to real estate.
• Subsequent liquidation of the company may make it easier to offset losses and optimise the tax impact.

b) Corporate restructuring

• Separating assets, through transfers to protected asset structures or internal reorganisations, may improve the accounting position and reduce the risk of adjustments for undervaluation.

c) Specialist advice

• Given the company’s inactivity and the gap between book and cadastral values, seek tax and legal advice to structure the transaction and prepare a valuation report.

6. Conclusion and final recommendation

1. Tax risk:
   • Selling below the revalued net assets of €344,600 could lead to an adjustment by the Tax Agency.
   • A well-supported valuation report is essential.
2. Corporate Income Tax and IRPF impact:
   • On the assumptions in this example, a tax loss of €64,600 could arise.
   • For IRPF, the gain or loss to be offset depends on the shareholders’ tax cost.
3. Transfer Tax and municipal capital gains tax:
   • As a rule, the sale of shares is exempt from Transfer Tax.
   • Municipal capital gains tax is not due unless the transaction is reclassified.
4. Strategy:
   • Selling the property separately and then dissolving the company may be more efficient.
   • Comprehensive professional advice is essential to reduce risks and improve the outcome.