Acquisition of shares through succession pacts is not subject to Inheritance Tax

The legal nature of the beneficiaries of a mortis causa transfer of assets determines the applicable tax. Recently, the Dirección General de Tributos (DGT) has clarified the tax treatment that shares acquired by a commercial entity through a succession pact must receive.

What the DGT has ruled

The query concerned whether the acquisition of shares in a public limited company, carried out by a newly created limited company through a succession pact, would be subject to Inheritance and Gift Tax (ISD). The DGT has determined that the mortis causa acquisition of shares for gratuitous purposes by a commercial entity is not subject to this tax.

The criteria are based on current regulations, specifically Article 3.2 of Law 29/1987 on Inheritance and Gift Tax. According to this provision, increases in wealth obtained by legal entities must be subject to Corporate Income Tax, displacing the application of ISD in these cases.

What it means for you

This criterion has direct implications for estate planning and the structure of family businesses. If a company is designated as the beneficiary of a succession pact, the increase in wealth derived from the receipt of those shares will not be taxed under the inheritance regime, but under the Corporate Income Tax regime.

For the shareholders, this scenario allows for the consideration of transferring their assets to a commercial entity as a structuring method, knowing in advance that the tax burden will be governed by the rules for legal entities and not those for natural persons.

What should be done

Given the difference in tax rates and settlement rules between Corporate Income Tax and Inheritance and Gift Tax, it is necessary to evaluate the structure of the transfer. The correct classification of the beneficiary entity is decisive for the final tax burden. It is recommended to assess each particular case to determine whether the receipt of assets through succession pacts by companies is the most efficient option in terms of tax burden.