Parent and subsidiary companies may form a tax group under the consolidation regime

Tax consolidation allows a group of companies resident in Spanish territory to be taxed as a single economic unit. A recent ruling from the Dirección General de Tributos (DGT) analyzes the viability of this regime when a parent company holds total control over its subsidiaries.

What the DGT has ruled

The tax authority has confirmed that a company may be considered a dominant entity in relation to another if it meets the requirements of Article 58 of the Corporate Income Tax Law (LIS). In the analyzed scenario, the parent company holds 100% of the capital and the majority of the voting rights of the subsidiary, allowing both to be integrated into a tax group.

For this regime to be applicable, the following criteria must be met:

• The companies must be resident in Spain and subject to, and not exempt from, Corporate Income Tax (IS).
• The commercial requirements for unity of decision provided for in Article 42 of the Commercial Code must be met.
• None of the entities may be subject to incompatible special regimes, such as those for holding companies or international tax transparency.

The resulting tax group will be composed of the dominant entity and any other company resident in Spain that is dependent on it.

What this means for you

If your business structure consists of a parent company that controls all or most of its subsidiaries, you have the possibility of unifying the tax base of all entities in the group. This implies that the tax group becomes the taxpayer, consolidating the results of the participating companies.

What should be done

To implement this regime, it is necessary to comply with the deadlines and formalities required by the regulations. All entities forming part of the group must adopt consolidation agreements in the immediately preceding tax period. Likewise, these agreements must be communicated to the Tax Administration before the start of the corresponding tax period. It is fundamental to verify that none of the companies in the group are under special regimes that prevent consolidation.