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V0135-24 16 February 2024 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · fusión por absorción

Merger by absorption of a wholly-owned subsidiary may qualify for tax neutrality

A query was raised regarding whether a merger in which an entity absorbs another that it owns 100% can apply the special regime under the Corporate Income Tax Act (LIS). The DGT indicates that, provided commercial and tax requirements are met, the transaction may be tax-neutral, allowing for the subrogation of tax loss carryforwards.

The question raised

Whether the aforementioned merger operation could qualify for the special tax regime provided for in Chapter VII of Title VII of Law 27/2014, of November 27, on Corporate Income Tax, and in particular, whether the reasons set forth can be considered economically valid.

The DGT's ruling

If the merger is carried out within the commercial sphere pursuant to Royal Decree-Law 5/2023 and complies with Article 76.1 of the LIS, the tax neutrality regime may be applied. In this case, income from the cancellation of the participation or from the transfer of assets shall not be recognized, and the values and seniority of the assets shall be maintained. The absorbing entity may subrogate into the negative tax bases of the absorbed entity under the requirements of Article 84 of the LIS. However, the regime shall not apply if the primary objective is fraud or the obtaining of a tax advantage without valid economic reasons.

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