The High Court of Justice of the Canary Islands has recently issued a favourable judgment in favour of a taxpayer operating a rural house in Tenerife, recognising the existence of an economic activity under Spanish tax law, even though no full-time employee had been hired.
This case, recorded in Judgment No. 562/2024, may be of considerable interest to owners of holiday homes and tax advisers alike. However, it must be interpreted with caution, as it does not establish binding legal precedent.
Case overview: a rural home offering hotel-like services
The taxpayer in question had been managing a holiday rental property registered in the Canary Islands’ tourism business census since 2001. Although no full-time employee was engaged, the taxpayer personally provided a range of services comparable to those found in hotel establishments, including:
- Regular cleaning
- Personalised guest assistance
- Provision and maintenance of the property
The Spanish Tax Agency classified the income as real estate capital gains. However, the High Court found that these operations amounted to a genuine economic activity for the purposes of personal income tax (IRPF), annulled the assessment, and ordered a refund of more than €2,000 to the taxpayer.
Legal significance of the ruling
Although the decision does not constitute binding jurisprudence, it provides a strong foundation for arguing that a holiday rental may constitute an economic activity even in the absence of salaried staff, provided the following conditions are met:
Active management of the business
Provision of complementary services
Registration for the appropriate economic activity code (IAE)
Ongoing and professional conduct of the activity
Key takeaways for advisers and property owners
While this judicial decision does not introduce a general legal change, it does offer a robust argument for classifying certain types of holiday lettings as economic activity under Spanish tax legislation, even when no employees are involved.
For tax professionals, it is essential to assess each case individually, verifying whether the specific facts and services provided meet the necessary thresholds for economic activity rather than passive rental income.
EBF Consulting: Expertise in up-to-date case law and fiscal defence
At EBF Consulting, we monitor the latest judicial criteria and developments that could impact your tax position. If you own a holiday rental property and are unsure whether your current tax structure is appropriate, contact our team. We will review your case and help you defend your position effectively before the Tax Authorities.