Within the economic circulation, on many occasions investment opportunities come up and offer us either the possibility of acquiring other businesses, or either to acquire functioning businesses or others that have ended their activity, but we think that we can relaunch with another type of management.
Usually, the acquiring party prefers to buy the business or productive unity that it is offered, and the selling party wants to transmit the ownership of the business. The first one, so that it does not end up having unknown obligations for itself (or that it does know if it has done a thorough process of Due Diligence) and the second one so that it can benefit from the tax advantages collected in article 21 LIS and avoid paying tax for the benefit. I fact, on many occasions the price is different depending on if the operation takes place according to the first or second way.
However, buyer’s position can’t be considered safe position at buying the business. The Tax Administration can declare both parties jointly liable of the debt that the seller might have if it considers that the other party has taken its place in the activity.
¿What is to succeed in the activity? It is believed that the succession of a business refers to exclusively what is known as “persianazo”: a tax payer with debts closes the business or society where its activity was taking place, to continue to develop it as a new creation, without any previous debts. This is one of these cases, but not the only one.
The general Tax Law (Ley General Tributaria) in its article 42.1c, when regulates the joint and several liability for succession the business fixes a bigger scope due to qualifying as liable people who: “succeed by any concept within the titularity or exploitation activity or economic activities, because of the tax obligations incurred by the previous holder and that have derived of its activity”. As we can see, in any place it is claimed that the new holder has to be the previous one (or be related to him), any person (natural or legal) that succeeds to another in the activity (in a wide sense that reaches the ownership or activity), will be liable of its tax debts.
There is not a detailed concept in law that stands as business succession, but the case law and the administrative doctrine have detailed which are the evidence that, jointly appreciated, will be enough to identify it: that the same activity is taking place, that it is performed by the previous workers or under the supervision of the same manager, in the same installations, same clients and suppliers, same brand, and others with the same nature. These elements do not have to concur all at the same time, it will be enough with the identification of some of them so that the Administration can consider the existence of a business succession.
This lack of regulation can lead us to perform transactions thinking that we are not taking any risk, and later being potentially dangerous. Let’s think of the acquisition of businesses that can only be destinated to a specific activity: like a restaurant, gas station, parking, supermarket…In all of them them a tax red light alert should light up for us. Our experience in this type of performances is very wide, and we have dealt with every type of liability statements for business succession, generally questioning the existence of such succession, the correct quantification of the required debt, or the used procedure, having achieved important results before the Courts. Nevertheless, we always recommend having in mind this before making any decisions on any purchase transactions, it is easier to prevent.
Law establishes some limitations to the demand of this liability: liability for successions of a business cannot be declared when exploitations or economic activities are acquired pertaining to a debtor if the acquisition has place in a bankruptcy proceeding. Neither can when it is a mortis causa succession (because it has its own regulation).
Specially, when what is acquired are just isolated elements, except the said acquisitions, taken by one or more people or entities, allow the continuation of the activity. However, it will be the Administration’s choice to consider if the acquisition of a determined element allows by itself the continuation of the activity or not.
Also, the Law, aware of the damage that this liability can cause to the normal flow of the economy, and of the obstacles in carrying operations can lead to, the law has established a security element for the buyer. Whom, with permission of the activity holder of the intended purchase, can request a special certificate from the Tax Agency, that will have three months to inform it of the transient’s tax debts that it will have to face. It is important to indicate that this certificate is not common of “being up to date with tax debts” that the debtor requires regarding himself, but the special article 175 LGT.
In the mentioned term of three months, the AEAT can, either answer indicating the existence of debts, in which the acquirer knows exactly the amount that he can be asked for, answer that there are not pending debts, or not answer, in this case no tax debts of any kind can be claimed from the buyer afterwards.
Nevertheless, at a purchase process, there are many times were terms are not taken to consideration, or even if they are, the seller can be sometimes reluctant to give its permission to request the certificate, afraid of activating any type of alert in the Tax Agency that leads to an examination. For this, whenever we are going to acquire a business or part of it, we should be advised by a professional, because the risks that we are going to take should always be measured, avoiding any surprises or actions that can significantly affect the development of our business.
José María García Guirao
Partner and Director of the Tax Area at Devesa & Calvo Abogados
