The application of Article 37.1.b) of the Personal Income Tax Act to the transfer of shares or equity interests in unlisted companies
The transfer of shares or equity interests in unlisted entities is a common transaction in closely held companies and in businesses with a strong family character.
Despite its frequent occurrence, this type of transaction entails significant tax complexities arising from the application of Article 37.1.b) of Law 35/2006, of 28 November, on Personal Income Tax and partially amending the Corporate Income Tax, Non-Resident Income Tax and Wealth Tax Acts (the Spanish Personal Income Tax Act – LIRPF).
This provision establishes a statutory presumption of value which may decisively affect the calculation of the capital gain arising from the transfer of equity interests in unlisted companies.
In this article, we analyse why this provision remains one of the most problematic rules in Spanish personal income tax, the practical difficulties it gives rise to, the recent administrative and judicial treatment it has received, and how a taxpayer may prove that the consideration agreed in the share transfer reflects the genuine market value.
What does Article 37.1.b) of the LIRPF regulate in relation to the transfer of shares or equity interests and why is it so controversial?
When a taxpayer transfers shares or equity interests that are not admitted to trading on regulated markets, the legislator presumes that the value declared may not coincide with that which would have been agreed by independent parties under market conditions.
To prevent undervaluation, the rule establishes a minimum deemed transfer value, which is the higher of the following two amounts:
- Net asset value, calculated on the basis of the equity shown in the balance sheet of the last financial year closed prior to the date of accrual.
- Capitalisation at 20% of the average results of the three financial years preceding the transfer.
Accordingly, only if the taxpayer succeeds in proving that the amount actually paid in the transfer corresponds to the market value may that amount be used as the actual transfer price.
As can be seen, the core problem with this provision lies in the fact that it entails:
- A reversal of the burden of proof, placing the obligation on the taxpayer (rather than on the Tax Authorities) to demonstrate that the real value coincides with the agreed price;
- A rebuttable presumption (iuris tantum) which, in practice, is often applied as if it were irrebuttable (iuris et de iure), with no real acceptance of evidence to the contrary; and
- A valuation method disconnected from the real characteristics of the market, particularly in family-owned companies, where there is no objective reference market.
Why is the presumption under Article 37.1.b) of the LIRPF so difficult to rebut?
In family companies, it is common for one or more of the following circumstances to arise:
- Compulsory sale by the taxpayer: in many cases, a minority shareholder has no real bargaining power, does not control the company, cannot find external buyers, or is forced to exit due to a corporate dispute, often under unfavourable conditions.
- Absence of a “real market” or independent buyers: equity interests in a closed family company are not comparable to listed shares. Their value may depend on internal circumstances such as dividend policy, family conflicts, restrictions in the articles of association, liquidity constraints, indebtedness, etc.
- A statutory deemed value that is far removed from the real price: net asset value or historical average profits fail to reflect relevant factors such as recent or foreseeable losses, financial stress, lack of liquidity, statutory restrictions, shareholders’ agreements, or the significance of the percentage stake transferred.
In such cases, the price agreed by the parties reflects genuine economic logic, yet it is likely not to coincide with the values resulting from the statutory presumption.
For this reason, requiring the taxpayer to prove that the agreed price is the one that independent parties would have set under normal market conditions amounts to an almost impossible evidential burden, as no real market exists and there are no comparable transactions.
Furthermore, where the transaction takes place between related parties, the general transfer pricing rules set out in Article 41 of the LIRPF, which refer to Article 18 of Law 27/2014, of 27 November, on Corporate Income Tax, do not apply.
In such cases, Article 37.1.b) prevails by virtue of the principle of speciality, a conclusion reached by the Spanish National High Court (Audiencia Nacional) in Judgment No. 3366/2025 (Appeal No. 686/2019) of 14 July 2025.
The role of the Tax Authorities: a rigid and deeply contested practice
Our practical experience in administrative proceedings shows that, where the declared transfer value is lower than the statutory minimum, the Spanish Tax Agency (AEAT) tends to reject any evidence provided by the taxpayer to justify the real price and automatically applies the minimum value laid down in Article 37.1.b).
This places the taxpayer in a profoundly unfair position, as they must prove not only that the agreed price is genuine, but also that it coincides with what independent parties would have paid in a hypothetical market which, in reality, does not exist.
This problem is aggravated where such rigidity results in taxation of non-existent capital gains, a frequent scenario where a minority shareholder sells at a loss in order to resolve a corporate conflict. In such cases, the statutory value, based on accounting indicators detached from reality, may generate a fictitious “taxable gain”.
Recent case law on the transfer of shares or equity interests: the Supreme Court and the closure of the contradictory expert valuation route
In January 2024, the Spanish Supreme Court handed down a judgment endorsing the Tax Authorities’ practice and closing the door to a traditional defence mechanism: contradictory expert valuation.
In the Court’s view, the Tax Authorities are not using the valuation methods provided for in Article 57 of the General Tax Act, but are instead applying a statutory valuation rule. Consequently, the taxpayer may not request a contradictory expert valuation to challenge it, thereby further restricting their defence.
However, the Supreme Court leaves a narrow door open: if the taxpayer provides robust evidence demonstrating a different real value, the Tax Authorities should initiate a valuation procedure, at which point the taxpayer could avail themselves of the procedural safeguards inherent to that process. In practice, however, this possibility rarely materialises.
What evidence can be used to prove the real value of the transaction?
Although administrative practice is restrictive, case law has accepted that any legally admissible means of evidence may be submitted. The most relevant include:
Independent expert valuation reports
Although often dismissed by the Tax Authorities, they remain the strongest form of evidence, particularly where they analyse:
- The company’s real financial and asset situation.
- Lack of liquidity of the shares or interests.
- Statutory restrictions.
- Absence of dividend distributions.
- Market conditions.
- Minority position
- Shareholders’ agreements or corporate disputes.
A clear example is Judgment No. 1676/2025 of the National High Court, dated 18 March, which accepted party-appointed expert reports using recognised business valuation methods such as discounted free cash flow analysis.
Corporate and market circumstances surrounding the transfer
Factors such as the absence of potential buyers, urgency of the sale, or corporate deadlock, if duly evidenced, may justify a price lower than that resulting from the statutory presumption.
Pre-existing contractual documentation
Call options, private agreements, earnest money arrangements, written offers or correspondence may evidence the genuine negotiation process between transferor and transferee.
Inconsistencies in the deemed statutory value
This involves demonstrating that the capitalisation of past results or net asset value:
- Reflects an extraordinary situation not representative of the company’s normal economic activity; or
- The balance sheet used was not known to the parties at the time of the transaction, as it may not have been publicly available.
The underlying issue: does Article 37.1.b) of the LIRPF breach the principle of ability to pay?
One of the most significant debates is whether the automatic application of this provision infringes Article 31 of the Spanish Constitution, which requires taxes to be levied in accordance with the taxpayer’s real economic capacity.
Where the deemed value forces taxation of a non-existent gain, disregards the real agreed value, and rejects the taxpayer’s evidence without meaningful evidential activity by the Tax Authorities, the taxpayer’s true economic capacity is distorted and the fairness of the tax system is undermined.
A significant body of academic opinion, case law and professional organisations (such as the Spanish Association of Tax Advisers, AEDAF) agree that the rule should be reformed to:
- Eliminate the reversal of the burden of proof.
- Require prior indicia before activating the presumption.
- Strengthen taxpayer safeguards.
Conclusion: a rule that requires caution and expert advice
Article 37.1.b) of the LIRPF is one of the most complex and controversial provisions in Spanish personal income tax.
As shown above, this presumption may force taxpayers to pay tax on non-existent gains, particularly in the context of family businesses where:
- There is no real market of buyers.
- Corporate conflicts exist.
- The holding transferred is a minority stake.
- The agreed price reflects special circumstances.
In such situations, specialised professional advice is essential to protect taxpayer rights, avoid economically unjust assessments and ensure taxation is aligned with genuine economic capacity.
If you are considering transferring shares or equity interests in a company, or if you have already received a notice from the Tax Authorities, Devesa can assist you in defending your interests with maximum legal certainty and technical expertise.
Do you need advice? Access our areas related to the application of Article 37.1.b) of the Personal Income Tax to the transfer of shares or equity interests in unlisted companies:
