Taxation of profits in companies in formation according to the Spanish Supreme Court

Interpretation of the Supreme Court on the taxation of the profits obtained by companies in formation, from the date of their incorporation to the date of their effective registration in the Commercial Registry.

The Supreme Court establishes that, in the case of companies in formation, their partners must pay income attribution tax under the personal income tax regime, and the entity is not subject to corporate income tax.

The Judgment of the Contentious Chamber of the Supreme Court of June 17, 2024 (Rec. 331/2023) as well as the Judgment of the Contentious Chamber of the Supreme Court of June 20, 2024 (Rec. 1984/2023) analyze which taxation (Personal Income Tax or Corporate Income Tax) corresponds in the case where a company that is incorporated by public deed on July 30, 2014, is subsequently submitted for registration in the commercial registry on December 16, 2014, but due to formal defects the same is not produced until June 2015.

The High Court interprets that the condition of corporate taxpayer must be assessed at the date of accrual of the tax, i.e. on December 31, 2014, when the entity must be registered in the commercial register. In addition, the company in formation developed its professional activity during a good part of the year 2014 and, in doing so, obtained income in that period.

Therefore, from a tax point of view, for the application of corporate income tax, it is a requirement to have legal personality, while the company under formation lacks such legal personality, since it is not registered in the Commercial Registry. 

In short, during the interval between the execution of the public deed of incorporation and the registration in the Commercial Registry, the company is not subject to corporate income tax, but rather the partners of the entity are subject to the income attribution regime contained in the personal income tax.

The court even understands that, although the filing entry has been generated, if the entry in the registry is made after the accrual date, the entity is not subject to corporate income tax either.