Corporate group tax optimization

The Challenge

A family holding group had grown over two decades through successive acquisitions, accumulating five subsidiaries with activities spanning construction, property development, asset management, hospitality, and auxiliary services. Each acquisition had retained the original corporate structure, creating a conglomerate with administrative redundancies, inefficient internal flows, and a consolidated tax burden far higher than necessary.

Dividends between subsidiaries were taxed redundantly, tax losses in some entities did not offset profits in others, and centralised services such as accounting, human resources, and legal advisory were invoiced without a coherent transfer pricing policy. The group chairman was aware of the inefficiency but lacked a roadmap to resolve it. A preliminary internal estimate suggested the group was paying between 300,000 and 500,000 euros more in corporate income tax annually than a well-structured equivalent would. No one had quantified it precisely or identified exactly where the savings lay.

Our Approach

We began with a comprehensive diagnostic of the group’s corporate and tax structure, a process that took four weeks and involved reviewing six years of consolidated accounts, the articles of association and intercompany agreements of all five entities, and the tax returns of each subsidiary and the holding company.

Mapping economic flows and real tax costs. We built a complete map of all intercompany transactions: management fees charged by the holding to subsidiaries, dividends paid upstream, intercompany loans and the interest charged on them, and shared service invoices. For each flow, we calculated the actual tax cost. This analysis immediately identified three problems: management fees were being invoiced without documentation supporting their market price, exposing the group to transfer pricing challenges; dividends from two subsidiaries were not qualifying for the Spanish participation exemption because of a structural issue with the holding’s ownership stake; and one entity was generating annual losses that could not be offset against the profitable subsidiaries because it sat outside any tax consolidation group.

Redesigning the corporate architecture. We identified that two of the five subsidiaries could be merged without operational impact — both operated in real estate-adjacent activities and shared management, staff, and systems. The merger, executed using the tax-neutral regime under the Spanish Restructuring and Merger Directives (Articles 76 et seq. of the Corporate Income Tax Act), eliminated the need for intercompany service invoicing between the two, removed a layer of compliance, and allowed the previously ringfenced losses to offset the merged entity’s future profits.

We designed the new group architecture around three entities: the holding company as parent under a tax consolidation regime (consolidacion fiscal), one operating subsidiary integrating the real estate and construction activities, and a third entity covering hospitality and services. The tax consolidation regime meant that the profitable entities’ taxable income would be offset against any losses in other group members in the same filing, eliminating the tax cost of the previous siloed structure.

Transfer pricing policy and dividend optimisation. We documented a formal transfer pricing policy for all remaining intercompany charges, with benchmarking studies supporting each margin. We restructured the dividend flows to ensure full qualification for the participation exemption, eliminating the redundant withholding at subsidiary level. Intercompany loan terms were reset to market rates with formal loan agreements, converting previously non-deductible charges into properly documented and deductible interest.

Results

The new structure generated annual tax savings of 28%, equivalent to 340,000 euros, through three mechanisms: tax consolidation eliminating the cost of non-offsettable losses, the restructuring of dividend flows to eliminate redundant taxation, and proper documentation of intercompany transactions removing transfer pricing exposure. The reduction from five to three entities simplified administration, reducing compliance and audit costs by over 60,000 euros annually.

The entire restructuring was executed within six months using tax-neutral statutory mechanisms, with no cash tax cost triggered by the reorganisation itself. The group’s statutory audit firm confirmed the new structure in its review of the first consolidated tax return filed under the new regime.