Mergers by absorption may maintain tax neutrality in CIT, PIT, and Wealth Tax

Business reorganization operations through mergers by absorption involve high tax complexity due to the concurrence of different taxes. A recent resolution from the Dirección General de Tributos (DGT) clarifies the scope of tax neutrality applicable to these operations, detailing how the transaction should be treated in Corporate Income Tax (IS), Personal Income Tax (IRPF), Wealth Tax, and other transfers.

What the DGT has resolved

The DGT confirms that a merger by absorption may qualify for the tax neutrality regime if it is carried out within a commercial scope and meets the requirements of article 76.1.a) of the Corporate Income Tax Law (LIS). The criteria are broken down as follows:

• Corporate Income Tax (IS): Neutrality applies if the requirements of the LIS are met.
• Personal Income Tax (IRPF): Partners resident in Spain will not include income in their taxable base for the attribution of values, as these will be valued at the tax value of the assets transferred.
• Wealth Tax (IIVTNU): The tax will not accrue if the circumstances of the second additional provision of the LIS are met.
• Stamp Duty (ITPAJD): The operation is considered a restructuring not subject to the corporate operations modality and is exempt in the modalities of onerous transfers and documented legal acts.

What it means for you

For companies, this criterion provides the possibility of executing consolidation or restructuring processes without the operation generating an immediate tax burden that affects the entity's liquidity or equity. The application of neutrality allows the tax values of the assets to be maintained, avoiding the recognition of latent capital gains at the time of the merger.

For individual partners resident in Spain, the consequence is the absence of tax impact on their income tax return due to the mere attribution of the new values following the merger, as the original tax values are respected.

What should be done

Since tax neutrality strictly depends on compliance with the business restructuring requirements provided for in the regulations, it is necessary to verify that the operation complies with the commercial scope and the provisions of the LIS. Each merger process presents technical particularities that must be analyzed to ensure that the conditions for exemption and non-subjectivity are met across all involved taxes.