TEAC embraces the Supreme Court doctrine: the full-time employee requirement in property rental can be met at group level

The Spanish Central Economic-Administrative Court (TEAC), in a resolution of 20 March 2026 (RG 6015/2024, joined with 6921/2024), has adopted the doctrine laid down by the Supreme Court on the full-time employee requirement for property leasing. Under that doctrine, the requirement in article 27.2 LIRPF may be met with the personnel and material resources of another group entity, provided there is a unity of resources and activity at group level and the lessor is functionally integrated into that activity.

In the case at hand, however, the TEAC dismisses the appeals because that integration was not proven. The resolution is therefore both a doctrinal opening and a warning about the burden of proof.

The change is significant. For years, administrative doctrine required each leasing company to have its own full-time employee. The new criterion bears on whether leasing qualifies as a business activity and, consequently, on the family-business exemption from Wealth Tax (art. 4.Ocho.Dos LIP) and on the 95% reduction in Inheritance and Gift Tax (arts. 20.2.c) and 20.6 LISD).

The regulatory framework

Article 27.2 of Law 35/2006 of 28 November on Personal Income Tax (LIRPF) provides:

“For the purposes of the previous paragraph, the leasing of real estate shall be deemed to be carried on as a business activity only where at least one person employed under an employment contract and on a full-time basis is used to manage it.”

The provision is the minimum statutory condition for leasing to qualify as a business activity for Personal Income Tax purposes. By cross-reference, it is also the condition for shares in leasing companies to benefit from the family-business exemption from Wealth Tax and the 95% reduction in Inheritance and Gift Tax, both of which require the entity to carry on a business activity rather than merely manage assets.

The statute says nothing about family groups with several leasing companies, which is precisely the situation that has caused most friction with the tax inspectorate.

The Supreme Court doctrine

Two lines of case law should be distinguished. The first is Supreme Court judgment 956/2025 of 14 July 2025 (appeal 2197/2023). It holds that, to apply the 95% Inheritance and Gift Tax reduction to a family business engaged in leasing, it is enough to prove the article 27.2 LIRPF requirements, and the Administration may not additionally require the hiring of the employee to be economically justified. It does not, however, address group resources.

The group question is settled by Supreme Court judgment 167/2026 of 17 February 2026 (appeal 1196/2024). It is reiterated by judgments 186/2026 of 19 February (appeal 1326/2024) and 196/2026 of 20 February (appeal 1143/2024), and by the judgment of 2 March 2026 (appeal 1417/2024).

In these judgments the Supreme Court accepts that the employee may formally sit in a group entity other than the one that owns the properties. The condition is that there is a real unity of resources and activity, and that the lessor is functionally integrated into a group business activity that goes beyond the mere leasing of real estate.

Two ideas follow. First, recognition of the economic reality of groups in which a central entity provides administration, management and support to other companies. Second, a substantive condition: mere formal membership of the group is not enough, and functional integration must be capable of being verified.

The TEAC’s adoption of the doctrine

The TEAC resolution carries that doctrine into the administrative sphere, as an express change of criterion with respect to its resolution of 23 March 2009 (RG 75/2009).

The criterion is as follows. Where the lessor belongs to a group of entities carrying on a business activity, within the meaning of article 42 of the Commercial Code and article 5.1 LIS, and the leasing is managed with the group’s personnel and material resources, even if centralised in other companies, the article 27.2 LIRPF requirement is deemed met.

The condition is that there is a unity of resources and activity at group level and that the lessor is functionally integrated into that activity, that is, that it serves the group’s business activity rather than simply using its resources. Where there is only formal group membership, the article 27.2 LIRPF requirements must be proven separately in the lessor itself.

In the case at hand, however, the TEAC dismisses both the taxpayer’s appeal and that of the Director of the Andalusian Tax Agency. No evidence was adduced of a unity of resources within the group or of the lessor’s functional integration, so the requirement was not deemed met.

In our view, such evidence will need to rest on elements such as intra-group service agreements, remuneration for those services, proof of common management and the actual dedication of personnel to the leasing activity. The TEAC does not list these elements; this is our reading of what proof will require.

Editor’s view

The change of criterion is welcome and reflects the economic reality of many family groups. Three observations are nonetheless in order.

First, the notion of “functional integration” is indeterminate and will lead to litigation, as the case itself shows. The strongest defence will involve documenting the services provided within the group —property administration, accounting and tax management, tenant services— with specific rather than lump-sum fees, and proving the actual dedication of personnel to the leasing activity. The inspectorate can be expected to keep rejecting purely formal compliance.

Second, in Corporate Income Tax the matter is expressly settled by article 5.1 LIS, which determines business activity by reference to all group entities. On this point, the Supreme Court and TEAC doctrine brings the Personal Income Tax and wealth-tax criterion closer to the Corporate Income Tax one.

Third, the change of criterion could open the way to rectifying self-assessments for non-time-barred periods in which, under the previous criterion, the Wealth Tax exemption or the Inheritance and Gift Tax reduction was not applied. There is, however, a risk that the Administration will invoke article 119.3 of the General Tax Act if it characterises the reduction as an option that had to be exercised in the return.

Practical consequences

For anyone structuring a family group with real-estate assets, the TEAC resolution of 20 March 2026 changes the planning landscape.

(i) An employee of another group entity may satisfy the requirement where the lessor is functionally integrated into a group business activity that goes beyond mere leasing. In purely real-estate groups this does not clearly follow from the doctrine, and the risk that the inspectorate will require each lessor to have its own employee remains significant.

(ii) Documenting integration is at the heart of the defence. In our view, the most useful elements will be an intra-group service agreement remunerated at market value (article 18 LIS, related-party transactions), a precise description of the services provided, identification of the assigned personnel and their dedication, common management reflected in minutes and a consistent documentary trail.

(iii) Review previous positions. Leasing companies that, under the previous criterion, were not treated as active —and therefore did not apply the Wealth Tax exemption or the 95% Inheritance and Gift Tax reduction— may reconsider their position for non-time-barred periods, subject to the caveat on article 119.3 LGT.

(iv) Do not rely on mere formal group membership. Both the Supreme Court and the TEAC stress that corporate links are not enough, and the case decided confirms it. Planning that cannot show verifiable functional integration —empty contracts, unjustified lump-sum fees, nominal staff— will continue to be challenged.

In conclusion, what this TEAC resolution makes clear is that the group-employee route is now open in the administrative sphere too, but only for those who can prove that the lessor forms part of a common business activity of the group.