Business Valuations: Defensible Value for Transactions, Tax, and Disputes

Business valuation is the process of determining the economic value of a company or equity interest using recognised financial methodologies, producing a documented, defensible value range for use in transactions, tax filings, shareholder disputes, or strategic planning. In Spain, valuation methodology for tax purposes is governed by Article 18 of the Corporate Income Tax Act (LIS) for related-party transactions and Article 9 of the Inheritance and Gift Tax Act (ISD) for inherited or donated business interests, with the Spanish Tax Agency (AEAT) empowered to substitute declared values with its own assessment when submissions are insufficiently supported. The principal methodologies — discounted cash flow (DCF), comparable transaction multiples, listed company multiples, and adjusted net asset value — must be selected based on the purpose and characteristics of the business and comply with International Valuation Standards (IVS); for listed companies, the CNMV requires independent fairness opinions in related-party transactions and squeeze-out situations.

Our valuations comply with International Valuation Standards (IVS) and are accepted by courts, tax authorities, and leading financial institutions. Independence and methodological rigour are the foundations of every report we issue.

Why Poorly Substantiated Valuations Destroy Value in Transactions and Create Tax Contingencies

Business valuations fail when the methodology is not matched to purpose, the assumptions are not challenged rigorously, or the independence of the valuer is compromised. In M&A negotiations, a poorly substantiated valuation creates a weak anchor in pricing discussions — the counterparty’s adviser will find and exploit every weakness in the model. For tax filings involving related-party transactions, inherited business interests, or shareholder exits, a valuation that cannot withstand AEAT scrutiny generates a contingency that negates the transaction’s intended efficiency. The AEAT has the power to substitute the declared value with its own assessment — and does so when the submitted valuation is insufficiently documented. For shareholder disputes, a report that lacks the independence and procedural rigour required by Article 335 LEC is excluded as evidence. In each scenario, the cost of a weak valuation vastly exceeds the cost of a rigorous one.

Our Business Valuation Process: Methodology, Modelling, and Defensible Documentation

Every engagement begins with a conversation about purpose: the methodological choices for an M&A negotiation differ from those for a tax compliance filing, a shareholder dispute, or a management incentive scheme. We select and apply the methods best suited to the purpose, the sector, and the characteristics of the business. For most commercial companies, we build a discounted cash flow model, construct a comparable transaction multiples analysis, and reconcile the two approaches into a documented, defensible valuation range. For holding companies and real estate-heavy businesses, adjusted net asset value carries significant weight and requires individual fair-value assessment of each material asset. For intangible-heavy businesses — technology, IP, brands — we apply recognised methodologies including the relief-from-royalty and multi-period excess earnings methods. We document every assumption, every methodological choice, and every source — because the credibility of a valuation depends on the quality of the reasoning, not just the arithmetic. Our due diligence and transfer pricing specialists contribute where the valuation intersects with financial analysis or related-party pricing.

Real Results in Business Valuations: 350+ Reports, 100% Accepted by Courts and AEAT

• 350+ valuation reports issued across transactions, tax filings, disputes, and regulatory purposes.
• EUR 4B+ in aggregate business value assessed.
• 100% acceptance rate by the AEAT and Spanish courts: methodology, documentation, and independence meet the standards applied in any review.
• Second-opinion reviews of counterparty valuations that identify aggressive assumptions and unsupported methodological choices before they become the basis of a transaction price.
• Purchase price allocations (PPA) under IFRS 3 following acquisitions: allocation of acquisition price to identifiable assets, intangibles, and goodwill.

Business valuations in Spain for tax purposes must comply with the methods recognised under Article 18 LIS (transfer pricing) and Article 9 ISD (Inheritance and Gift Tax). The AEAT may substitute the declared value with its own assessment — capitalisation of profits or assets — when the submitted valuation is insufficiently documented. For M&A transactions, valuations must comply with IVS as market best practice. For listed companies, CNMV rules require Fairness Opinions in related-party transactions and squeeze-out situations. The integration of valuation with succession planning is particularly important for family businesses: the value used in a tax-efficient donation or inheritance must be defensible before the AEAT while also reflecting the genuine business value on which the family’s long-term financial planning rests.

When a business valuation is required

A formal business valuation is required in a wider range of circumstances than most business owners anticipate:

• M&A transactions: any business acquisition or disposal requires an independent assessment of fair value to inform pricing negotiations and provide a defensible basis for the transaction price.
• Transfer pricing: Spanish tax law and OECD guidelines require that transactions between related parties — including share transfers within a group and intercompany loans — be priced at arm’s length, which requires a documented valuation methodology.
• Succession and estate planning: transferring business assets to the next generation through donation or inheritance triggers ISD obligations assessed on the fair value of the transferred assets. The empresa familiar exemption applies to the excess value above the assessed value, making accurate valuation critical.
• Shareholder disputes and exit rights: when a shareholder exercises exit rights (drag-along, tag-along, buy-sell) or a dispute arises about the value of a shareholder’s stake, an independent valuation is required to resolve the disagreement.
• Litigation and expert evidence: insurance claims, fraud investigations, and commercial disputes frequently require expert valuation testimony. Our valuations experts have experience as court-appointed peritos and independent experts in arbitration proceedings.
• Employee equity plans: employee share option plans and restricted stock unit programmes require periodic valuations for tax and accounting purposes.

Valuation methodologies: which approach for which context

The appropriate valuation methodology depends on the type of business, the purpose of the valuation, and the quality of available financial data:

DCF (Discounted Cash Flow): the theoretically most rigorous methodology, based on the present value of projected free cash flows discounted at the weighted average cost of capital (WACC). Appropriate for businesses with predictable cash flows and a clear long-term outlook. Sensitive to assumptions about growth rates and discount rates — robust sensitivity analysis is essential.

Comparable company multiples (CCA): applying EV/EBITDA, EV/Revenue, or P/E multiples derived from publicly traded comparable companies or recent private transactions to the subject company’s financial metrics. The most commonly used methodology in practice, subject to careful adjustment for size, leverage, growth, and liquidity differences between the subject and comparables.

Comparable transaction multiples (CTA): applying multiples from completed M&A transactions in the same sector. Particularly relevant when transaction pricing is the primary reference point (e.g., in M&A contexts).

Net asset value (NAV): appropriate for asset-holding companies (real estate, investment vehicles) where the underlying asset values are more meaningful than earnings multiples.

Dividend discount model (DDM): used for businesses that generate predictable dividend streams and where the dividend policy is stable.

In most business valuation engagements, we apply multiple methodologies and triangulate the results, providing a valuation range rather than a single point estimate — which is more honest about the inherent uncertainty in any business valuation.

Business valuation in Spain: specific considerations

Spanish business valuations have several features that distinguish them from valuations in other European markets:

• Closely held companies: the overwhelming majority of Spanish businesses are family-controlled and unlisted, which means that marketability discounts and minority interest discounts (where applicable) require careful calibration against Spanish market evidence.
• Regional economic differences: EBITDA multiples for equivalent businesses in Madrid, Catalonia, and other regions can differ due to the regional economic context, investor base, and market depth.
• Tax valuation rules: for ISD, IP, and tax purposes, Spanish tax authorities apply their own valuation methods (typically based on capitalised earnings or adjusted book value) which may diverge from market-based valuations. Documenting the reconciliation between tax-method valuations and market-based valuations is important for transactions with a fiscal dimension.

Contact our valuations team for an initial consultation on your valuation requirements.