Mergers between companies owned by the same shareholder may apply tax neutrality

Corporate reorganizations involving the merger of companies under common control have a specific tax treatment framework. Recently, the Dirección General de Tributos (DGT) has clarified the scope of tax neutrality in operations where there is neither a capital increase in the absorbing company nor a direct attribution of assets to the shareholder.

What the DGT has ruled

The ruling analyzes whether a merger between companies wholly owned by the same shareholder can qualify for the special regime for mergers, spin-offs, exchange of securities, and asset contributions provided for in the Corporate Income Tax Law (LIS). The Administration's criteria establish that the operation may apply the tax neutrality regime even if there is no capital increase in the absorbing company or an attribution of assets to the shareholder.

The basis for this resolution lies in the fact that the shareholder's equity position does not undergo a substantial change, given that the increase in the value of their holding in the absorbing company compensates for the loss of the holdings in the absorbed company. However, the DGT warns that this treatment will not be applicable if it is determined that the primary objective of the restructuring is tax fraud or evasion.

What this means for you

For companies that are part of a group or are under common control, this resolution offers greater operational flexibility. It means that reorganizations can be executed without the obligation to carry out capital increases or asset attribution processes that, in other scenarios, might be necessary to guarantee tax neutrality.

The possibility of integrating operations without generating capital gains in the tax base allows for structural movements to be carried out more agilely, provided that the requirements of current regulations are met and there are economic motives to support the operation.

What should be done

In the event of a merger operation under common control, it is necessary to:

• Verify that the ownership structure complies with the requirements of the Corporate Income Tax Law.
• Prove the existence of real economic motives that justify the restructuring to avoid being classified as fraud or evasion.
• Evaluate the impact on the valuation of the holdings to ensure that the shareholder's equity position remains in accordance with the Administration's interpretation.