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

Companies undergoing structural reorganization processes, specifically through the merger by absorption of a wholly-owned subsidiary, have the possibility of applying the tax neutrality regime provided that the established legal requirements are met.

What the DGT has ruled

The Dirección General de Tributos (DGT) has determined that, if the merger is carried out for commercial purposes in accordance with RD-ley 5/2023 and complies with the provisions of Article 76.1.c) of the Corporate Income Tax Law (LIS), the operation may qualify for the special regime for mergers, spin-offs, asset contributions, and exchange of securities.

Under this scenario, the following tax effects occur:

• No recognition of capital gains: Capital gains will not be recognized in the transferring company.
• Maintenance of values: There will be no change in the tax values in the acquiring company.
• Offsetting of tax loss carryforwards: The negative tax bases of the absorbed company may be offset in the absorbing company, respecting the limits provided in Article 84 of the LIS.

Furthermore, the binding body clarifies that the existence of negative tax bases does not invalidate the application of the regime, provided that the merger benefits the economic activity and is not solely intended to take advantage of said bases.

What it means for you

For companies operating within corporate groups, this ruling confirms the viability of reorganizing their structures without the operation causing an immediate tax impact in terms of capital gains or changes in asset values. The possibility of transferring negative tax bases to the absorbing company allows for more efficient management of the group's tax results, provided that the operation has a real economic justification and is not merely for tax purposes.

What should be done

In the event of a merger by absorption, it is necessary to verify that the ownership structure complies with the requirements of Article 76.1.c) of the LIS. It is essential to demonstrate that the reorganization responds to valid economic motives that benefit the activity, preventing the operation from being interpreted as a measure intended exclusively for the offsetting of tax loss carryforwards.