Mergers by absorption of subsidiaries may maintain tax neutrality with valid economic reasons

Business restructuring operations, specifically mergers by absorption, require a rigorous analysis of their purpose to determine whether they can benefit from special tax treatment. The Dirección General de Tributos (DGT) has specified the necessary conditions for these operations to maintain tax neutrality.

What the DGT has resolved

The DGT determines that a merger by absorption of a subsidiary may qualify for the tax neutrality regime provided for in Article 76.1.c) of the Corporate Income Tax Law (LIS), provided that the operation is carried out in a commercial setting and responds to valid economic reasons.

The criterion establishes that the application of this regime allows for the maintenance of the values and seniority of the assets of the absorbed entity. However, the tax authority warns that this benefit will not be applicable if it is detected that the main objective of the operation is fraud, tax evasion, or the obtaining of a spurious tax advantage.

A relevant point is the management of tax losses. The existence of tax loss carryforwards in the companies involved does not automatically invalidate access to the neutrality regime, provided that the predominant purpose of the merger is not the exploitation of said tax credits.

What this means for you

For companies planning restructuring processes, this resolution confirms that tax neutrality is possible, but conditions its application on the economic substance of the operation. It is not enough to comply with the formal requirements of Law 27/2014; it is necessary for the merger to have a commercial or operational efficiency justification that transcends tax savings.

Companies must be aware that the tax administration will analyze whether the operation's ultimate goal is the use of tax loss carryforwards or the generation of tax advantages without a real economic basis.

What should be done

In the event of a merger or spin-off operation, it is necessary to:

• Detail the economic and commercial reasons that justify the restructuring.
• Evaluate whether the operation could be interpreted as a search for spurious tax advantages.
• Analyze the composition of the tax loss carryforwards to ensure they are not the main driver of the merger.
• Assess each case individually to determine the viability of the neutrality regime.