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V2674-17 20 October 2017 · SG de Fiscalidad Internacional Criterion in force
OTRO · llc

Merger of two US-resident LLCs may not constitute a taxable disposal in Spain if treaty requirements are met

A query was raised regarding whether the merger of two US LLCs, which hold Spanish subsidiaries, triggers a capital gain in Spain. The DGT ruled that, under the Double Taxation Convention with the US, the transaction may not be considered a disposal if the requirements for a group of companies are satisfied.

The question raised

Whether the merger of the two LLCs, from which the two Spanish companies depend directly or indirectly at 100%, generates a taxable capital gain in Spain.

The DGT's ruling

The potential gain derived from the merger between two LLCs resident in the same Contracting State shall not be considered a disposal under Article 13.4 of the Convention, if paragraph 10.c) of its Protocol is applied. For this to occur, the transfer must take place between members of a group under a consolidated tax regime and the consideration must be the participation in the transferee, provided that a resident company holds at least 80% of the capital of both. In such case, the gain may only be taxed in the State of residence of the transferor.

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