On numerous occasions, the binding inquiries issued by the General Tax Directorate, give us “clarity and light” to professionals of tax advice, to design the best possible strategies for our clients. But in others, the opposite seems to be true, “obscuring” the application of certain approaches, originating in the recent past.
Pharmacy donation query example 1
A clear example is the binding query V2680-20 with a departure date of September 2, 2020. The following situation is described:
“The consultant is a pharmacist and currently provides services in the pharmacy owned 100 percent by his father, also a pharmacist. The consultant intends to receive by donation from his father, age 65, a 40 percent fee from the pharmacy. The remaining 60 percent will remain the property of his father, together with whom he will constitute a community of property that will run the pharmacy. After the donation, his father will cease to carry out the activity in a personal, habitual and direct way since it will be the consultant who leads the management and administration of the business, exercising the activity in a habitual and direct personal way and constituting his main source of income. ”.
The query made to the tax authorities is:
“If it is possible to apply the reduction in tax base regulated in article 20.6 of Law 19/1987 on Inheritance and Donations Tax to the proposed donation”
Contextualization of the query
To contextualize the reader, the reduction to which the query refers is specified in the possibility offered by the donation tax legislation to discount 95% of the value of the transmitted (in our case, 40% of the pharmacy office from father to son). If this reduction can be applied, it practically leaves this typology of situations, very frequent in the sector in question, in a “zero” taxation.
Regardless of the fulfillment of the requirements in donor (father) and donee (son) for this tax advantage, the General Directorate of Tax introduces the term of “transfer of the company or business as such”, rescinating in this case the object of the tax credit to the “total detachment of the pharmacy”.
As is customary in this body, other binding consultations are used (2142-99 of November 12, 1999, 0157-02 of February 4, 2002 and 0166-03 of February 7, 2003) to refer to the concept of “Economic activity considered individually” and the need for “globality” of the donation.
Pharmacy donation query example 2
But, we miss a reference from the authorities, to another of their best binding inquiries from our pharmacy office sector. We are talking about V3106-18 dated November 29, 2018, in which the situation consulted was as follows:
“The consultant, who is 74 years old and is a pharmacist by profession and owner of a pharmacy, wants to proceed to transfer ownership of the pharmacy to his son, also a pharmacist, and to safeguard the interest of his other two daughters considers carrying out said transfer at the same time through two different titles: 50% by donation and the remaining 50% would be the object of sale, in which the acquirer, who would be the same donor child, would pay a normal price of market”.
On this occasion, the query was exactly the same as it is today, but the starting point was not identical: Yes, you could take advantage of the exemption established in article 20.6 of Law 29/1987.
Article 20.6 of Law 29/1987, of December 18, on Inheritance and Gift Tax, establishes the following:
The “big difference” in this case is that “all at once” 100% of the pharmacy is transferred, part donated and part sold. But the requirement of globality is present.
Textually says the General Directorate of Transmissions (DGT): “The rule of article 20.6 responds to the purpose of facilitating the intergenerational transmission of economic activities, for the cases in which these, individually and globally considered, are transmitted in favor of the spouse, descendants or adopted of the donor. This Directorate General understands that the free and “inter vivos” Transmission of half of a pharmacy business to carry out a pharmacy business fits this purpose and this, although the other half of the business is subject to onerous transmission between the donor and the recipient. . In accordance with the foregoing, the application of the aforementioned rule is considered appropriate, applying the reduction on the real value of the patrimonial elements subject to donation ”.
As a conclusion, we believe that it is actually in the last paragraph of our initial binding consultation, where we get to the “gray matter” of the matter. The tax authorities conclude by clarifying that:
“An analogous case is the one that arises in the present consultation document, insofar as it is intended to constitute” ex novo “a community of goods in which the donor would reserve 60 percent of the property, so the conclusion, that it must be similar, in the sense that the projected operation could not benefit from the 95 percent reduction provided for in article 20.6 of Law 29/1987, of December 18, on Inheritance and Gift Tax ”.
In other words, what really blocks the application of the 95% reduction for donation from the pharmacy is that subsequent “continuity” of the donor in that new community of goods, which will continue to operate the business.
The Royal Academy defines us in one of its meanings “Claroscuro” as a “sharp contrast between light and shadows in a painting”. Although for our tax context, there is no doubt that the third meaning best portrays us: “set of contradictory features of a person, a situation or a thing”.
As the Greek philosopher would say: “I only know that I know nothing.”
Juan Antonio Sanchez
Economist Tax Advisor. Collegiate 7654.
Managing partner TAXFARMA
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