Tax neutrality in mergers by absorption: DGT ruling

The Dirección General de Tributos (DGT) has issued a relevant pronouncement regarding the application of the tax neutrality regime in business reorganization operations. The ruling focuses on determining whether a merger by absorption of one company by another belonging to the same group can benefit from the tax advantages provided for in current regulations.

What the DGT has resolved

The tax authority's analysis focused on the feasibility of applying the tax neutrality regime established in Chapter VII of Title VII of the Corporate Income Tax Law (LIS). The main issue was to verify whether the proposed operation meets the legal requirements to avoid the integration of income into the tax base of the companies involved.

For this treatment to be applicable, the regulations require that the operation be carried out under conditions that allow for the continuity of activity and that there are valid economic reasons justifying the reorganization, beyond mere tax optimization. The DGT examined the structure of the merger between Company B and Company C under the framework of the LIS and the provisions of Royal Decree-Law 5/2023.

What it means for you

For companies operating through group structures, this criterion confirms the existence of a regulatory framework that allows for the integration of companies without it resulting in an immediate impact on the tax burden due to the integration of income. If the merger complies with the requirements of the LIS, the operation can be executed while maintaining tax neutrality, which avoids the generation of an additional tax base at the time of absorption.

What should be done

The application of this regime requires a rigorous verification of the legal requirements and the accreditation of economic reasons that support the operation. It is essential to ensure that the merger structure strictly adheres to the provisions of the Corporate Income Tax Law and the General Tax Law. Since neutrality depends on meeting specific conditions, each operation must be analyzed individually to determine its compliance with current regulations.