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A query was raised regarding whether a total demerger followed by the donation of shares allows for the application of the special regime under the Corporate Income Tax Act (LIS). The Directorate General for Taxes (DGT) indicates that, although the alleged economic motives may be valid, if the primary purpose is to carry out donations with more advantageous tax treatment, the special regime will not apply due to the lack of a valid economic reason.
Question posed: Whether, following the described background, it is understood that the special regime of Chapter VII of Title VII of the Corporate Income Tax Law applies to the total demerger operation of company C followed by a subsequent donation of shares of the beneficiary companies.
The application of the special regime requires that the operation does not have fraud or tax evasion as its primary objective, nor is it carried out without valid economic motives. If the primary motive is to donate assets to shareholders with more advantageous taxation than previously, the existence of a valid economic motive is denied. Furthermore, a proportional total demerger followed by transfers between shareholders may be equivalent to a non-proportional demerger if the assets do not constitute business lines.
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