Proportional total demergers may qualify for tax neutrality without separating lines of business

The application of the special tax neutrality regime in corporate reorganization processes has raised doubts regarding the nature of the assets being segregated. The Dirección General de Tributos (DGT) has recently clarified the scope of this regime in the case of proportional total demergers.

What the DGT has resolved

The ruling analyzes whether a total demerger, both qualitatively and quantitatively, can benefit from the special regime contained in the Corporate Tax Law (LIS). The Administration's criteria establish a fundamental distinction between two types of operations:

• Non-proportional total demerger: In this case, it is an indispensable requirement that the segregated assets constitute autonomous lines of business in order to apply tax neutrality.
• Proportional total demerger: When shareholders maintain their same shareholding in the resulting new entities, the regulations do not require the segregated assets to be lines of business.

The DGT considers that the economic motives underpinning a proportional demerger are valid, provided they are linked to the continuity of the business activity of the companies involved.

What this means for you

This resolution offers greater operational flexibility for companies seeking to reorganize their asset structure. If a company decides to carry out a total demerger where the shareholding composition remains identical in the resulting companies, it will not bear the burden of proving that each segregated asset functions as an independent economic unit or line of business to avoid immediate taxation.

For the shareholders of the demerged company, this criterion is relevant as it allows the operation to remain under the regime of non-integration of income, provided that the requirements of the Corporate Tax Law are met.

What should be done

In the event of a corporate reorganization process, it is necessary to evaluate whether the demerger structure will be proportional or not. The chosen strategy will determine the complexity of the documentation required to justify tax neutrality before the Administration. It is recommended to analyze the composition of the assets and the shareholders' participation structure before executing the operation to ensure compliance with current regulations.