Mergers by absorption may apply tax neutrality under Royal Decree-Law 5/2023
The planning of corporate reorganizations requires strict compliance with regulations to avoid unforeseen tax impacts. Recently, the Dirección General de Tributos (DGT) has clarified the scope of the tax neutrality regime in merger by absorption operations, especially in the context of the modifications introduced by Royal Decree-Law 5/2023.
What the DGT has resolved
The administration has confirmed that a merger by absorption operation can be subject to the special tax neutrality regime provided for in Chapter VII of Title VII of the Corporate Income Tax Law (LIS), provided that the conditions established in article 76.1 of said law are met and it is carried out under the protection of Royal Decree-Law 5/2023.
Under this regime, two fundamental effects occur:
- Income derived from the transfer of assets will not be included in the tax base.
- Market values will not be applied for the valuation of the operation.
However, the DGT warns that this benefit is not absolute. According to article 89.2 of the LIS, the neutrality regime will not be applicable if it is determined that the main objective of the operation is fraud, evasion, or the obtaining of a spurious tax advantage.
What it means for you
For companies, this criterion allows for mergers between companies within a group without the capital gains from the transferred assets being taxed under Corporate Income Tax (IS), facilitating internal reorganization without an immediate cash outflow to cover taxes.
Regarding individual partners resident in Spain, the application of this regime implies that they will not include in their Personal Income Tax (IRPF) tax base the income derived from the attribution of values in the merger process.
What should be done
In the event of a possible corporate reorganization, it is necessary to verify that the operation strictly complies with the requirements of article 76.1 of the LIS and that the economic motivation for the merger is real and does not respond solely to a search for an undue tax advantage. Each merger scenario must be analyzed to ensure it fits within the neutrality assumptions permitted by current regulations.
Frequently asked questions
- What happens if the merger's main purpose is to obtain an undue tax advantage?
- In that case, the tax neutrality regime cannot be applied according to article 89.2 of the LIS.
- How does this criterion affect individual partners?
- Partners resident in Spain will not include in their IRPF tax base the income from the attribution of values in the merger.