Companies must segregate an autonomous line of business to ensure tax neutrality

The application of the special tax neutrality regime in partial demerger operations requires strict compliance with technical conditions that go beyond the simple division of assets or human resources.

What the DGT has ruled

The Directorate General of Taxes (DGT) has specified the requirements necessary for a partial demerger to qualify for the special regime provided for in the Corporate Income Tax Law (LIS). According to the issued criteria, the transferred assets must constitute a line of business that represents an autonomous economic unit.

For this requirement to be considered met, the activity must have:

• A distinct business organization.
• A separate management model.
• The capacity to function by its own means.

The advisory body warns that the existence of isolated elements, such as independent premises or specifically assigned staff, does not guarantee the existence of a line of business if an economic exploitation with its own operational autonomy is not identified.

What this means for you

If your company is considering a partial demerger to reorganize its structure, the main risk is the loss of tax neutrality. If the Administration considers that what has been segregated is not an autonomous economic unit, the operation will cease to be taxed under the special regime, and the capital gains generated in the transfer will be subject to Corporate Income Tax.

This implies that the structure of the activity intended to be transferred must be fully operational and distinct from the main activity of the transferring entity before formalizing the operation.

What should be done

Before executing any demerger process, it is necessary to conduct a technical analysis of the internal organization. It must be verified that the unit to be segregated possesses a management structure and a resource organization that allow it to operate independently from the parent company. Accounting and organizational documentation will be fundamental to prove that a real economic exploitation exists and not a mere division of assets.