Reverse mergers by absorption may apply tax neutrality

Business restructuring operations, specifically reverse mergers by absorption, are under scrutiny by tax regulations to determine their access to special benefits. A recent binding ruling analyzes the feasibility of applying the tax neutrality regime in scenarios where the absorbed company holds 100 percent of the capital of the absorbing company.

What the DGT has resolved

The Dirección General de Tributos (DGT) establishes that a reverse merger by absorption may qualify for the tax neutrality regime provided for in Chapter VII of Title VII of the Corporate Income Tax Law (LIS), provided that the operation is carried out under Royal Decree-law 5/2023 and complies with the provisions of article 76.1 of the LIS.

The technical criterion emphasizes that the application of this regime entails specific consequences for the entity's tax accounting:

• Income will not be integrated into the tax base of the resulting company.
• The values and the seniority of the transferred assets will be maintained.

However, the administration warns that this benefit is not automatic. The neutrality regime will be excluded if it is determined that the main objective of the operation is fraud, tax evasion, or obtaining a spurious tax advantage without valid economic reasons to support it.

What it means for you

For companies executing restructuring processes, this pronouncement confirms the possibility of carrying out reverse mergers without the transfer of assets causing an immediate impact on the Corporate Income Tax base. This allows for the continuity of book values and the seniority of assets, facilitating the management of the corporate structure.

What should be done

Since tax neutrality is conditional on the existence of real economic reasons, companies must precisely document the business rationale for the merger. It is necessary to ensure that the operation is not perceived as a merely tax-driven strategy, but as a legitimate business management decision, to prevent the Administration from denying access to the special regime.