Consultation: MH-DGT-CONS-119-0009-2024, San José, January 10, 2024, regarding the indirect transfer of real estate due to business reorganization.
I. Factual Background
The company Comercial […] Sociedad Anónima, located in Puntarenas, is planning a business restructuring. This involves the creation of a holding company to consolidate management and strengthen synergy between the different entities of the business group.
II. Specific Query
“Is the exchange of shares between subsidiary companies and the holding company considered an indirect transfer of the properties of my represented company for the purposes of the taxable event of the real estate transfer tax under articles 2 and 4 of the Real Estate Transfer Tax Law?”
III. Consultant’s Criteria
The law defines an indirect transfer as a legal transaction that involves the transfer of control over a legal entity that owns the property. In the case presented, although the partners are transferring shares from one company to another of which they will also be partners in the same proportion, it is stated that there is no substantial change in control.
In other words, the consultant argues that the share exchange does not imply an indirect transfer, as there is no substantial change in control over the companies.
Furthermore, it is argued that this operation aims to strengthen the management of the business group, without altering the fundamental structure of control.
IV. General Directorate’s Criteria
With regard to what should be understood as the “transfer of control,” cited in the regulation, it is indicated to the consultant that this Directorate has already established its conceptualization, indicating that it is any transfer of more than 50% of the shares of a company that owns real estate to another natural or legal person, in which case it is understood that the entire property was transferred.
Therefore, the General Directorate of the Real Estate Transfer Tax Law considers that, according to the Real Estate Transfer Tax Law, the exchange of shares between companies constitutes an indirect transfer subject to the tax. This is based on the legal definition of an indirect transfer and the effective transfer of control over the properties. Therefore, the consultant is obligated to pay the corresponding tax. The regulations do not make exceptions for business reorganizations, and the indirect transfer is configured when more than 50% of the shares of a company that owns real estate is transferred to another company.