Mergers by absorption may apply tax neutrality in Corporate Income Tax

Corporate reorganizations through mergers by absorption have a specific tax treatment framework that seeks to avoid an immediate tax burden in restructuring operations. The Dirección General de Tributos (DGT) has specified the conditions under which these operations can benefit from tax neutrality.

What the DGT has resolved

The tax administration confirms that, if a merger by absorption is carried out in a commercial context in accordance with Royal Decree-Law 5/2023 and complies with the provisions of Article 76.1.a) of the Corporate Income Tax Law (LIS), the operation may benefit from the tax neutrality regime.

Under this assumption, the following effects occur:

• Income derived from the transfers will not be recognized by either the absorbing entity or the shareholders.
• The values and the seniority of the transferred assets will be maintained.

However, the DGT warns that this neutrality regime will not be applicable if it is determined that the main objective of the operation is tax fraud or evasion.

What it means for you

For companies, this criterion allows for the execution of corporate reorganizations without the capital gains generated by the transfer of assets being taxed immediately in Corporate Income Tax (IS). This facilitates asset mobility and the restructuring of groups without an immediate cash outflow to cover tax obligations.

Regarding shareholders resident in Spain, the application of this regime implies that they shall not include in their taxable base the income derived from the attribution of values from the acquiring entity, thereby preserving the continuity of the tax burden for a later time.

What should be done

Since the application of tax neutrality is subject to strict compliance with the requirements of Article 76.1.a) of the LIS and the absence of fraudulent purposes, it is necessary to analyze the economic substance of the operation. Each merger process requires a technical evaluation of the applicable regulations, including the LIS and the TRLITPAJD, to ensure that the reorganization structure complies with current legality.