Partial demergers without a remaining line of business will be taxed under the general regime

The application of the tax neutrality regime in demerger operations requires strict compliance with the requirements established in the Corporate Income Tax Law (LIS). It is not enough to carry out a transfer of assets; it is necessary for the resulting structure to maintain a coherent economic organization.

What the DGT has ruled

The Directorate General of Taxes (DGT) has determined that, to qualify for the special tax neutrality regime in a partial demerger, the part remaining in the transferring entity must constitute a line of business. According to the administrative criteria, a line of business must be an autonomous economic unit, capable of functioning by its own means.

In the case analyzed, the inquiry proposed a partial demerger where a set of assets linked to a property was transferred to a new company, while the original company retained another property. The DGT has concluded that, if the entity that keeps the asset does not maintain its own organizational structure and only retains isolated assets, such as a property without its own means, the requirement of article 76.2.1º b) of the LIS is not met. Therefore, the operation does not enjoy tax neutrality and is subject to the general regime.

What this means for you

For companies planning corporate reorganizations through demergers, this criterion implies that the composition of the resulting company is decisive. If the part remaining in the parent company lacks an operational structure or an organization that allows it to act as an independent economic unit, the operation will lose its special tax treatment.

This means that the transfer of assets will be considered an operation subject to ordinary taxation under Corporate Income Tax (IS), which could increase the tax burden of the operation. Likewise, individual shareholders could be affected by the taxation of capital gains if the demerger does not comply with the neutrality requirements.

What should be done

Before executing a partial demerger, it is necessary to verify that the part remaining in the transferring entity maintains a line of business with its own means. Planning must ensure that the remaining economic unit is capable of functioning autonomously to guarantee the application of the tax neutrality regime provided for in current regulations.