Companies may apply tax neutrality in partial demergers and mergers

Corporate reorganization processes, such as improper financial partial demergers or mergers by absorption, involve significant technical complexity regarding Corporate Income Tax (IS). The application of the tax neutrality regime is a determining factor to ensure that these operations do not generate an unnecessary tax burden during the restructuring.

What the DGT has ruled

The Dirección General de Tributos (DGT) has analyzed the feasibility of applying the regime provided for in Chapter VII of Title VII of Law 27/2014 (LIS) in specific reorganization scenarios. The criteria focus on determining whether improper financial partial demerger operations and mergers by absorption can benefit from this tax treatment.

The ruling confirms that, provided the requirements established in current regulations are met, these operations can benefit from tax neutrality. This implies that the transfer of assets and liabilities resulting from the demerger or merger should not be treated as an onerous transfer with immediate tax effects, as long as the conditions of the Corporate Income Tax Law are respected.

What it means for you

For companies executing reorganization processes to seek operational efficiency, this criterion provides legal certainty. It means that:

• Improper financial partial demergers can be carried out without the operation being considered a transfer of assets subject to the full tax at the time of the demerger.
• Mergers by absorption maintain the possibility of applying the neutrality regime, avoiding the early realization of capital gains.
• The structure of the operation must strictly adhere to the provisions of Law 27/2014 to avoid losing this benefit.

What should be done

In the event of such an operation, it is necessary to conduct a prior technical analysis to verify that the demerger or merger complies with the requirements of the Corporate Income Tax regulations. The correct documentation of the operation and verification that the provisions of the LIS are met are fundamental to guarantee that tax neutrality is applicable and to avoid contingencies with the Tax Administration.