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V0918-24 25 April 2024 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · fusión impropia

Mergers by absorption may qualify for special tax neutrality if legal requirements are met

A query was raised regarding whether an improper merger through the absorption of a wholly-owned subsidiary can apply the special regime under the Corporate Income Tax Act (LIS). The Directorate General for Taxes (DGT) ruled that if the transaction meets commercial requirements and complies with Article 76.1 of the LIS, it may qualify for said regime, provided its primary objective is not tax fraud or evasion.

The question raised

Whether the improper merger operation between entities A and B, by means of the absorption of entity B by entity A, would objectively qualify within the special regime provided for in Chapter VII of Title VII of the LIS.

The DGT's ruling

For an absorption to qualify for the special regime, it must be carried out within the commercial sphere pursuant to Royal Decree-Law 5/2023 and comply with Article 76.1 of the LIS. In improper mergers where the absorbing entity holds at least a 5% interest, no income shall be recognized from the cancellation of said interest. However, the regime shall not apply if the primary objective of the transaction is fraud, tax evasion, or the mere attainment of a tax advantage without valid economic reasons.

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