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A parent company has queried whether accounting reserves resulting from a merger by absorption of its subsidiary can be used to reduce the taxable base through the capitalisation reserve reduction. The DGT clarifies that such reserves are considered increases in equity arising from restructuring operations and must be excluded from the calculation.
Question raised: The significance of the described merger operation in the calculation of the reduction of the tax base regulated by Article 25 of the Corporate Income Tax Law, which the parent company will apply to determine its Corporate Income Tax settlement for the 2016 fiscal year.
Reserves generated accounting-wise by merger processes of a participated entity are considered increases in equity due to restructuring operations. Therefore, pursuant to Article 25.2.c) of the LIS, these reserves must be excluded when determining the increase in equity. However, the increase that the subsidiary would have obtained independently of the merger must be taken into account if the legal requirements are met.
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