Non-proportional spin-offs of corporate holdings will not enjoy tax neutrality

The application of the special regime for mergers, spin-offs, asset contributions, and exchange of securities requires strict compliance with technical requirements regarding the nature of the assets being transferred. A recent resolution from the Directorate General of Taxes (DGT) focuses on the definition of a "line of business" necessary to access tax neutrality in spin-off operations.

What the DGT has ruled

The query analyzed whether a non-proportional total spin-off, through which a company dissolves its assets to transfer them in a block to two new entities, could benefit from the special regime provided for in Law 27/2014. The objective of the operation was to diversify financial and commercial risk, as well as to avoid future conflicts between the successors of the partners.

However, the tax authority's criterion is clear: for a non-proportional total spin-off to enjoy tax neutrality, the segregated assets must constitute lines of business. These are defined as autonomous economic units with the capacity to function by their own means. The DGT concludes that the management of holdings in other entities does not constitute the development of an economic activity. Therefore, a block of holdings cannot form a line of business for the purposes of Article 76.4 of the Corporate Income Tax Law.

What this means for you

This criterion directly impacts companies seeking to restructure their assets through the division of financial assets or corporate holdings. If the spin-off operation consists of separating groups of holdings in different companies to create new structures, the tax neutrality regime cannot be applied. This implies that the operation could be subject to ordinary taxation, losing the deferral advantages offered by the special regime for mergers and spin-offs.

What should be done

Companies intending to carry out non-proportional spin-offs must ensure that the segregated assets are real and operational lines of business, and not mere portfolios of holdings. It is necessary to verify that the segregated economic unit possesses functional autonomy and its own means to operate independently from the segregating company.