The High Court of Justice of the Canary Islands has recently issued a ruling in favour of a taxpayer operating a rural house in Tenerife, recognising the existence of an economic activity even though no full-time employee had been hired.
This case, covered in Judgment 562/2024, may be of great interest to holiday home owners and tax advisers, although it should be approached with caution, as it does not constitute generally applicable case law.
The case: a rural house offering hotel-style services
The taxpayer managed a tourist property registered in the census of tourist enterprises, in operation since 2001. No full-time employee had been hired, but the taxpayer personally provided services similar to those of a hotel, such as:
- Regular cleaning
- Personalised guest attention
- Provision and maintenance of the property
The Tax Agency considered that these earnings should be taxed as income from real estate capital. However, the High Court of Justice of the Canary Islands held that there was a genuine economic activity for Personal Income Tax (IRPF) purposes and annulled the tax assessment, ordering the refund of more than €2,000 to the taxpayer.
What is the significance of this ruling?
Although it does not create binding precedent, this decision strengthens the possibility of arguing before the tax authorities that a holiday rental property may constitute an economic activity, even without salaried staff, if it can be demonstrated that there is:
- Active management
- Provision of complementary services
- Registration in the relevant business and tax censuses
- Continuity and professionalism in the activity
Conclusion for advisers and property owners
This court ruling does not imply a general change in the law, but it does provide a strong argument for defending cases in which the taxpayer provides services professionally without hiring staff.
For tax advisers, it is important to analyse each case individually and assess the possibility of declaring income as deriving from an economic activity if the necessary elements are present — even in the absence of an employee.
At EBF Consulting, we keep up to date with the latest judicial criteria that can help you defend your tax position before the authorities.
If you own a holiday rental property and wish to check whether your tax model is appropriate, contact us and we will review it with you.