Companies may apply tax neutrality in partial demergers and mergers

Corporate reorganization is a key tool for optimizing business structures. Recently, the Directorate General of Taxes (DGT) has issued a ruling on the feasibility of applying the tax neutrality regime in complex operations that combine financial partial demergers and mergers by absorption.

What the DGT has ruled

The inquiry focuses on determining whether improper financial partial demerger operations, combined with a subsequent merger by absorption, can benefit from the neutrality regime provided for in Chapter VII of Title VII of Law 27/2014 on Corporate Income Tax (LIS).

The tax administration's technical analysis confirms that it is possible to apply this tax neutrality regime, provided that the requirements demanded by current regulations are met, including the modifications introduced by Royal Decree-Law 5/2023. The key lies in the operation maintaining the essence of a corporate reorganization that allows for the continuity of values and the deferral of tax effects under the established legal assumptions.

What it means for you

For companies executing reorganization processes, this criterion provides legal certainty in operations that are not merely simple. If a company needs to carry out a financial partial demerger to separate assets or liabilities and, subsequently, integrate elements through a merger, the possibility of maintaining tax neutrality prevents these transitions from generating an immediate tax burden that could compromise the liquidity or viability of the new structure.

The application of this regime allows the tax effects of the transfer of assets and rights to be deferred, transferring the accounting and tax values of the demerged or absorbed company to the resulting entity, as stipulated in the Corporate Income Tax Law.

What should be done

Given the complexity of improper financial partial demerger operations, it is necessary to conduct an exhaustive technical analysis before starting the process. It must be verified that the structure of the operation fits strictly within the assumptions of the LIS and that all requirements regarding continuity and the destination of assets are met. Each corporate reorganization presents particularities that require a detailed evaluation of the applicable regulations to ensure that tax neutrality is effective and not challenged by the Administration.