Companies may apply tax neutrality in partial demergers if they segregate lines of activity

The application of the tax neutrality regime in partial demerger processes of companies requires compliance with specific requirements regarding the nature of the transferred assets. The Dirección General de Tributos (DGT) has specified the necessary conditions so that these types of operations do not trigger immediate tax effects for the transferring entity or its partners.

What the DGT has resolved

For a partial demerger to qualify for the special regime provided for in the Corporate Income Tax Law (LIS), the segregated assets must meet an essential condition: they must constitute an autonomous economic unit. This implies that the separated line of activity must be capable of functioning on its own.

Furthermore, the regulations require that the transferring entity is not exhausted by the process, meaning it must retain at least one other line of activity in its assets that is distinct from the segregated one. In scenarios where one intends to separate, for example, a real estate activity from a cosmetics one, the administration requires proof of the existence of two differentiated blocks that operate independently.

What it means for you

If your company operates with various business lines, this criterion allows you to separate different economic activities in terms of assets without generating taxable capital gains at the time of the operation. The main benefit lies in the ability to reorganize the corporate structure while maintaining the continuity of tax values.

For partners, this means that the attribution of values in the demerger will not incorporate income into their tax base, as the original tax values of the assets are maintained. It is a reorganization tool that avoids an immediate tax burden, provided that the autonomy of the economic units involved is demonstrated.

What should be done

Before initiating a partial demerger process, it is necessary to conduct a technical analysis of the activities intended to be separated. You must ensure that each business block can operate independently and that the resulting company retains another economic activity.

Proving the autonomy of the line of activity is the critical point to prevent the Administration from considering the operation as an ordinary asset transfer subject to taxation. It is recommended to assess each case individually to confirm that the proposed structure meets the requirement of an autonomous economic unit.