The Superior Court of Justice of Catalonia has ruled in favor of the Treasury and forces the heir of a pharmaceutical company to pay 97,511.11 euros for a poorly declared donation. According to the ruling, the woman had donated 41% of her pharmacy to her daughter shortly before she died, but she did not declare the profit she obtained in personal income tax. The Tax Agency found that she did not meet the requirements to enjoy the tax exemption provided for family businesses, since she was retired and did not work regularly in the business.
It all starts in 2012, when a pharmacist who had been working in her pharmacy for almost 50 years decided to donate 41% of the business to her daughter, since she was going to retire and leave the self-employed regime (the RETA). The operation was carried out before a notary and both remained as co-owners, in which the mother had 49% and the daughter 51%. However, no capital gain was declared in the deed, since the family understood that the operation could benefit from the personal income tax exemption of article 33.3.c of the Personal Income Tax Law, in relation to article 20.6 of the Inheritance and Donation Tax Law and article 4.8 of the Wealth Tax Law, which regulate the tax benefit for the transfers of family businesses.
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When the pharmacist died in 2017, the Tax Agency reviewed the personal income tax return corresponding to 2012 and the inspection report ended up clarifying that the mother “did not regularly, personally and directly carry out the pharmacy business activity”, based on the testimonies of the employees and the daughter herself, who recognized that it had been years since she had actively participated in the management. According to the ruling, the statements collected by the Treasury “allow us to reach a reasonable conviction that the mother was not involved in the management of the pharmacy, going to it sporadically, and that the boss was the daughter.”
For all the reasons explained, the Treasury proceeded to send a notification in November 2018 informing of the provisional settlement for the amount of 97,511.11 euros in personal income tax. The family appealed to the Regional Economic-Administrative Court of Catalonia, but without success, so they decided to go to court before the Superior Court of Justice of Catalonia.
The transmission was a business, not some social shares
The Superior Court of Justice of Catalonia agreed with the Treasury and rejected the appeal presented by the heiress of the pharmacy. The magistrates explained that the operation was a partial donation and not a transfer of participation in a company. As the Chamber explains, this type of establishment can only be run by pharmacists, so it is not possible to form companies with legal personality and that is why “they cannot be considered to be shares of an entity for the purposes of the Wealth Tax.”
The court also adds that the requirements to benefit from the tax exemption provided for in article 33.3.c of the Personal Income Tax Law (can be consulted in this BOE) were not met, in which the owner carried out the activity in a habitual, personal and direct manner. The ruling expressly cites that “the appellant, in fact, withdrew from the daily and comprehensive management of the pharmacy years before the transfer.”
In support of this conclusion, the testimonies of the workers and the daughter herself were valued, who recognized that the mother, now retired, barely went to the premises and that it was her daughter who handled all the daily management of the business.
The magistrates also highlighted that the Treasury’s action was correct and sufficiently motivated. In the words of the ruling, the statements collected by the inspection “allow us to reach a reasonable conviction that the mother was not involved in the management of the pharmacy, going to it sporadically, and that the boss was the daughter.”
For all this, the court ends up clarifying that the requirements for said tax benefit were not met, so they must pay the 97,511.11 euros as it was a poorly declared donation.