Mergers by absorption of wholly-owned subsidiaries may apply tax neutrality

Business reorganization operations through the merger by absorption of a wholly-owned subsidiary have a specific regulatory framework to avoid immediate tax impacts. The recent interpretation by the Dirección General de Tributos (DGT) delimits the necessary conditions for these transactions to remain under the tax neutrality regime.

What the DGT has resolved

The tax authority has confirmed that, if a merger operation is executed under Royal Decree-Law 5/2023 and complies with the provisions of Article 76.1 of the Corporate Income Tax Law (LIS), it is possible to opt for the tax neutrality regime. This implies that income derived from the transfer of assets or the cancellation of the shareholding will not be included in the taxable base, provided that the requirements established in Articles 77 and 82.1 of the LIS are respected.

However, the resolution warns that this tax benefit is not absolute. The neutrality regime will be excluded if it is determined that the main objective of the operation is tax fraud or evasion, in accordance with the provisions of Article 89.2 of the LIS.

What it means for you

For companies planning consolidation or restructuring processes, this criterion offers legal certainty regarding the application of tax neutrality. If the structure of the operation complies with current regulations and the requirements of the LIS, the company can avoid paying taxes on the income generated at the time of the merger, allowing the value of the assets to be transferred without an immediate tax burden.

What should be done

In the event of a possible merger by absorption, it is necessary to verify that the following points are strictly met:

• Ensure that the operation falls within Royal Decree-Law 5/2023.
• Validate compliance with the requirements of Articles 76.1, 77, and 82.1 of the LIS.
• Confirm that the economic motivation for the merger is legitimate and does not respond to tax evasion purposes to avoid the application of Article 89.2 of the LIS.

Each corporate restructuring presents particularities that require a detailed technical analysis to guarantee compliance with current regulations.