Analysis of the Resolution of the Regional Economic-Administrative Tribunal of the Balearic Islands of 27 March 2025
The recent Resolution of the Regional Economic-Administrative Tribunal of the Balearic Islands of 27 March 2025 (claim 07/02374/2023) constitutes a pronouncement of singular relevance in the application of the special regime for displaced workers provided for in Article 93 of the Personal Income Tax Act. The case addresses a question that, in our daily practice, generates considerable litigation: access to the regime when relocation to Spanish territory is structured through appointment as director of a Spanish company that holds participations in other entities.
The Tribunal’s message is unequivocal: if the administered company constitutes, in essence, a patrimonial entity within the terms of Article 5 of the Corporate Income Tax Act, and the director holds a significant participation that determines connection pursuant to Article 18 CIT, the impatriate regime does not apply, regardless of whether the corporate name includes terms such as “holdings” or the corporate purpose references activities of direction and management of participations.
The Factual Background: Sole Shareholder, Sole Director, and Holding Company Without Substance
The underlying facts of the case present characteristics that, regrettably, we encounter frequently in structures designed to facilitate access to the impatriate regime:
A taxpayer relocates to Spain and requests application of the special regime provided in Article 93 PIT, invoking the circumstance contemplated in section 1.b).2º of the provision: acquisition of the status of director of a Spanish entity.
The structure presents, nevertheless, the following characteristics:
- The taxpayer is sole director of XZ Holdings, S.L.
- He holds, simultaneously, the status of sole shareholder of the same entity.
- XZ has as its formal corporate purpose the holding of participations and management of a holding structure.
The Regional Tax Management Office of the Special Delegation of the Spanish Tax Agency in the Balearic Islands denies application of the regime, finding that XZ constitutes a patrimonial entity within the terms of Article 5 CIT and that, as the taxpayer holds 100% of the share capital, connection exists pursuant to Article 18 CIT.
The taxpayer files an administrative appeal—subsequently dismissed—and, finally, an economic-administrative claim, alleging that XZ develops a genuine economic activity as a holding company and that, consequently, it cannot be classified as a patrimonial entity, thus fulfilling all requirements demanded by Article 93 PIT.
The Legal Framework: Two Cumulative Filters for Company Directors
The TEAR begins its analysis by recalling the applicable legal regime. Following reform of the special regime for displaced workers, one of the qualifying routes to access it is, precisely, appointment as director of a Spanish entity. However, Article 93.1.b).2º PIT itself introduces a limitation of extraordinary practical relevance:
“In the event that the entity has the status of patrimonial entity within the terms provided in Article 5, section 2, of the Corporate Income Tax Act, the director may not hold a participation in said entity that determines its consideration as a connected entity within the terms provided in Article 18 of Act 27/2014, of 27 November, on Corporate Income Tax.”
As the Tribunal expressly notes, this implies application of two successive and cumulative filters:
- First: determine whether or not the administered entity has the status of patrimonial entity pursuant to Article 5.2 CIT.
- Second: if affirmative, verify whether the director holds a participation that determines the existence of connection within the terms of Article 18 CIT, which in practice will occur when the participation equals or exceeds 25% of the share capital.
Article 5 CIT defines as patrimonial entity one in which more than half of its assets consist of securities or are not attached to an economic activity. In turn, it establishes that economic activity shall be understood as “the organisation on one’s own account of means of production and human resources, or one of both, with the purpose of intervening in the production or distribution of goods or services.”
Crucially, the provision introduces a specific clarification for holding companies: securities that grant at least 5% of the capital of an entity and are held for a minimum period of one year, with the purpose of directing and managing the participation, shall not be computed as securities, provided that the corresponding organisation of material and personal means is available, and the participated entity is not included in this section (that is, that the subsidiary is not, in turn, patrimonial).
The Key to the Pronouncement: Absence of Real Economic Activity and Evidentiary Deficiency
In view of the documentation submitted by the claimant, the TEAR reaches an unequivocal conclusion: XZ Holdings, S.L. does not develop a genuine economic activity within the terms required by Article 5 CIT. The factual elements assessed by the Tribunal prove especially significant for those of us who structure international mobility operations:
Regarding XZ Holdings:
The TEAR emphasises that “entity XZ files VAT model 303 for Q4 2022 ‘without activity’. Likewise, it files model 390 without including any operation.”
In the first quarter of 2023, the company declares solely “an invoice for 500 euros for services rendered as director to entity TW SL”, together with goods or services received amounting to 380 euros.
In the second quarter of 2023, again a single invoice for 500 euros for administration services to TW, with goods or services received amounting to 993.98 euros.
Regarding the subsidiary entities (TW, S.L. and QR, S.L.):
The Tribunal notes that “regarding subsidiary entity TW, only the registration (model 036) is provided, dated …/22, under the IAE heading for organisation of congresses and assemblies.”
Crucially, “no invoice is provided proving provision of services by it, nor invoices proving acquisition of goods or services destined for the indicated economic activity. No VAT returns are provided. Nor Corporate Income Tax returns. Nor contracts executed with third parties for provision of the services that constitute its corporate purpose.”
Regarding QR, S.L., the situation proves even more precarious: only “the deed of elevation to public of certain corporate resolutions and cessation of sole proprietorship” is provided, it being noted that it is “an entity pending registration in the Commercial Registry.” Likewise, no documentation whatsoever is provided proving real economic activity.
From this analysis, the TEAR draws two fundamental conclusions that merit emphasis for their clarity and forcefulness:
“It has not been proven that entity XZ carries out a genuine and real economic activity within the terms required by the aforementioned legislation. The issuance of 2 sole invoices, for services rendered as director to entity TW, since the date of its registration (…) cannot be understood as an activity effectively performed for the direction and management of the shareholdings that constitute XZ’s assets.”
“In any case, it has not been proven, beyond mere assertions, that the subsidiary entities are not patrimonial entities, that is, it has not been proved that entities TW and QR perform an economic activity within the terms required by the aforementioned Article 5 CIT.”
The Tribunal expressly underscores application of the general rule on burden of proof in the tax sphere, contained in Article 105 General Tax Act: “in procedures for application of taxes, whoever asserts their right must prove the facts constituting it.” Recalling consolidated Supreme Court jurisprudence, the TEAR notes that whilst the Administration must prove the taxable event and its magnitude, it falls to the taxpayer to prove facts that favour them, such as exemptions, allowances, deductions or, as in this case, fulfilment of requirements to access special regimes.
The Tribunal’s evidentiary conclusion proves devastating: “the claimant has not proved, conclusively, that entity XZ is not a patrimonial entity. And, moreover, from the facts set forth, precisely the contrary can be concluded: that it is.”
Connection and Final Consequence: Denial of the Impatriate Regime
Once XZ is classified as a patrimonial entity, the second requirement—the existence or otherwise of connection—is resolved almost automatically.
Article 18.2.a) CIT establishes that “an entity and its partners or participants” shall be considered connected persons or entities, specifying that “in cases where connection is defined as a function of the relationship of partners or participants with the entity, the participation must equal or exceed 25 per cent.”
In the present case, as the Tribunal emphasises, “information from the Commercial Registry exists, issued on date … of 2023, at … hours, from which it follows that Mr Axy is the sole shareholder of XZ.” Additionally, “there exists a deed of capital increase of XZ, dated … of 2023, in which Mr Axy himself subscribes the entirety of the increased capital. Therefore, he maintains the entirety of XZ’s share capital.”
The TEAR’s conclusion proves, consequently, inexorable:
“Entity XZ is a patrimonial entity. Its director holds a participation of more than 25% in its share capital (the director is, in fact, sole shareholder of XZ). The requirement demanded by Article 93 PIT is not fulfilled. Mr Axy cannot opt to be taxed under the special regime applicable to workers displaced to Spanish territory.”
The claim is dismissed and the challenged administrative act is confirmed in its entirety.
Our Reading: Holdings Without Substance and Structural Risk in Beckham Law Planning
Whilst this is a non-binding pronouncement, the criterion of the TEAR of the Balearic Islands proves perfectly aligned with consolidated administrative doctrine and with the trend we observe in inspection practice in recent years. From our perspective, founded on twenty-five years advising international mobility operations and cross-border estate structures, this resolution offers lessons of extraordinary practical value:
The “Holding” Label in the Corporate Name Does Not Suffice
The mere formal existence of a company that holds participations in its assets does not automatically convert it into an entity with economic activity for purposes of Article 5 CIT. It is absolutely essential that there exist a genuine organisation of material and personal means, and a substantive activity of direction and management of participations, with tangible reflection in recurring invoicing, documented intra-group service contracts, coherent cost structure and, when the structure’s dimension requires it, dedicated professional personnel.
The issuance of two half-yearly invoices of 500 euros each does not constitute, evidently, a direction and management activity with the intensity and continuity that the legislation demands. This is precisely the Tribunal’s assessment and coincides fully with our experience in inspection procedures.
The Substance of Subsidiaries Also Proves Determinative
An aspect of the pronouncement deserving special attention is that the TEAR does not limit its analysis to XZ Holdings. The Tribunal equally examines the operational reality of the subsidiary entities (TW and QR), noting that they likewise fail to prove any economic activity.
This approach proves technically impeccable and coherent with the very configuration of Article 5 CIT, which excludes from the consideration of securities those fulfilling certain requirements provided that “the participated entity is not included in this section”, that is, that the subsidiary is not, in turn, patrimonial.
For holding structures used as a vehicle for entry into the Beckham Law regime, this implies an evidentiary requirement extending vertically throughout the entire participation chain. It does not suffice to prove that the Spanish holding company develops activity; it is equally necessary to demonstrate that the subsidiaries are genuine operating companies with real economic activity and attached means.
Sole Shareholder and Director: Structurally Vulnerable Combination
When relocation to Spain is structured through appointment as director of an entity of which the taxpayer is, simultaneously, sole shareholder or majority shareholder, administrative scrutiny will inevitably prove especially intense.
In such cases, the dividing line between “personal patrimonial vehicle” and “holding company with substantive economic activity” is not drawn in the statutory corporate purpose nor in the entity’s denomination, but rather in the underlying economic reality and in the capacity to demonstrate it conclusively through contemporaneous, coherent and verifiable documentation.
Proof Cannot Be Improvised After Application for the Regime
One of the most revealing aspects of the analysed case is the notable weakness of the evidentiary file submitted by the claimant. However, this circumstance does not constitute, in our experience, an isolated case. We frequently observe that international relocation projects are designed trusting that “there will be no problem” justifying holding company activity ex post facto, once a requirement is received from the Administration.
The TEAR’s criterion unequivocally reinforces the idea that proof of the existence of economic activity must be preconstituted from the initial moment of relocation—ideally, even before it—and must be solidly and exhaustively documented, not as a defensive exercise before a potential inspection, but as genuine reflection of an effective operational reality.
Recommendations for Structuring Relocations Through Spanish Companies
In light of this resolution and our accumulated experience in operations of this type, we consider it essential to adopt the following precautions when a client considers using a Spanish company as a vehicle to access the impatriate regime:
Design the Corporate Structure with Full Knowledge of Article 5 CIT
Before proceeding with relocation and application for the special regime, it proves absolutely necessary to:
- Exhaustively analyse whether the company may be classified as patrimonial pursuant to Article 5 CIT, both considering the composition of its assets and the material reality of its activity.
- Meticulously review the situation of subsidiary entities, especially when the holding company’s principal assets consist of participations in other companies. As we have seen, classification of subsidiaries as patrimonial irremediably contaminates the holding company.
- Perform an analysis of projected quarterly balance sheets permitting verification that the 50% test of assets attached to economic activity is met, taking into account all exclusions and nuances of Article 5 CIT.
Provide Real, Verifiable and Measurable Substance to the Holding Company
Substance is not presumed; it is constructed and proven. This implies:
- Defining with precision the direction and management functions of participations that the holding company will develop, endowing them with real operational content and not merely formal or nominal.
- Formalising intra-group service contracts documenting services effectively rendered by the holding company to subsidiaries (strategic direction services, financial advisory, centralised treasury functions, shared administrative services, risk management, etc.), with pricing according to market standards.
- Establishing formal corporate governance policies, decision-making procedures, calendar of board meetings, documentation of resolutions adopted.
- Carefully evaluating the need for personal means (employees, external professionals with stable relationship) and material means (office, equipment, information systems) that convincingly support the consideration of economic activity. Although these means may be partially outsourced, a real and verifiable organisation must exist.
- Generating from the outset recurring, coherent invoicing according to functions effectively developed, with reflection in periodic tax returns.
Align Participation, Appointment and Impatriate Regime
From a structure optimisation perspective:
- Critically assess whether it proves essential that the relocated taxpayer hold a majority participation in the entity or whether it makes sense to modulate the participation—for example, limiting it to a percentage below 25%—to avoid application of the connection filter in the event the entity could be classified as patrimonial.
- In family structures or with various investors, consider corporate governance formulas permitting maintenance of effective control without needing to hold participations determining connection for purposes of Article 18 CIT.
- Meticulously coordinate the moment of appointment as director, the effective commencement of the holding company’s activity, and submission of the application for special regime, such that the legal-formal narrative and the economic-substantive narrative prove perfectly coherent and verifiable at any moment.
Preconstitute a Solid and Contemporaneous Evidentiary File
Experience demonstrates that inspections concerning the impatriate regime occur, frequently, several tax years after the initial application. At that moment, evidentiary reconstruction of operational reality proves extraordinarily complex. Therefore, we recommend:
- Documenting in a contemporaneous and exhaustive manner all elements proving existence of economic activity: contracts, invoices issued and received, payrolls, payment orders, commercial communications, meeting minutes, periodic management reports.
- Maintaining an ordered and accessible documentary archive permitting proof, at any moment, of both the holding company’s activity and that of subsidiaries.
- Performing periodic reviews (at least annually) of compliance with Article 5 CIT requirements, anticipating possible changes in asset composition or activity intensity that could affect the entity’s classification.
Conclusion: Substance Over Form in Structures for Accessing the Beckham Law Regime
The special regime for displaced workers undoubtedly constitutes a tool for attraction of talent, investment and economic activity of extraordinary power. For high-net-worth taxpayers with international projection, the tax advantage it offers—taxation as non-resident, with a flat rate of 24% on employment income and economic activities up to 600,000 euros annually—proves, in many cases, determinative in the decision to establish residence in Spain.
However, pronouncements such as that of the TEAR of the Balearic Islands we have analysed demonstrate that access to the regime, particularly when structured through corporate structures, is far from automatic or merely formal.
For profiles combining relocation to Spain, significant participation in holding companies, and aspiration to avail themselves of the special regime of Article 93 PIT, the key to success resides in rigorous prior design and in absolute coherence between legal form and economic substance.
A “holding company” without real economic activity, without organisation of means, without substantive and recurring invoicing, and with subsidiaries that likewise do not develop operational activity, will be treated by the tax authorities—and, in due course, by the courts—exactly as what it is: a patrimonial entity. And this will determine, inexorably, denial of access to the impatriate regime when the director holds significant participations.
Our professional advice, founded on more than fifteen years of specialised practice, is categorical: these projects must be approached as genuine international estate reorganisation operations, not as mere formal changes of position in a company or administrative transfers of residence.
Only through technically rigorous planning, construction of real substance from the outset, and meticulous management of documentary proof, does it prove possible to make compatible the undeniable attractiveness of the impatriate regime with the level of legal certainty that our clients’ assets, media exposure and sophistication require and deserve.
