Non-proportional demergers require autonomous lines of business for tax neutrality

The application of the special tax neutrality regime in demerger operations is not automatic. The Directorate General of Taxes (DGT) has specified the requirements necessary for companies performing total non-proportional demergers to avoid the immediate taxation of capital gains derived from the operation.

What the DGT has ruled

The tax authority's criteria focus on the nature of the elements being separated from the transferring entity. For a total non-proportional demerger to qualify for the regime provided in the Corporate Income Tax Law (LIS), the segregated assets must necessarily constitute lines of business.

The DGT defines these lines of business as sets of elements capable of functioning by their own means. This implies that the transferring entity must have differentiated business organizations, equipped with sufficient material and human resources to allow the autonomous development of each resulting economic exploitation. If the operation lacks this organizational autonomy, it will not be possible to apply the tax neutrality regime.

What this means for you

If your company is planning a restructuring through a demerger where shareholders receive shares in proportions different from the original ones, the burden of proof lies with the entity. A mere accounting or asset division is not enough; it is imperative to demonstrate that each segregated unit possesses an independent operating structure.

Failure to comply with this autonomy requirement leads to the loss of the tax benefits of the demerger, which would force the transferring company to include the income in its tax base, generating an immediate tax burden that could compromise the economic viability of the operation.

What should be done

Before formalizing any non-proportional demerger process, it is necessary to conduct a technical analysis of the company's organizational structure. It must be verified that each business unit has the human and material resources necessary to operate independently. Correctly documenting this organizational autonomy will be fundamental to support the application of the special regime in the event of an eventual inspection by the Tax Agency.