Tax neutrality in the merger by absorption of wholly-owned subsidiaries

The Directorate General of Taxes (DGT) has issued a relevant ruling on the application of the special tax regime for mergers in corporate reorganization operations. The analysis focuses on determining whether a merger by absorption of a wholly-owned subsidiary can benefit from the tax neutrality provided for in current regulations.

What the DGT has resolved

The query concerned the applicability of the special regime regulated in Chapter VII of Title VII of Law 27/2014 on Corporate Income Tax (LIS). The technical issue consisted of verifying whether the operation of a merger by absorption of a subsidiary can benefit from this special tax treatment.

The criteria are based on the regulatory framework established by the Corporate Income Tax Law and the updates introduced by Royal Decree-Law 5/2023. The resolution allows these operations to be carried out under the neutrality regime, preventing the reorganization from generating capital gains or income includable in the Corporate Income Tax base.

What it means for you

For companies operating with group structures, this ruling confirms the feasibility of carrying out mergers of subsidiaries without the operation resulting in an immediate tax impact in the form of taxation on income derived from the transfer of assets. This is possible as long as the operation is supported by valid economic reasons and complies with the requirements of business reorganization regulations.

The possibility of maintaining tax neutrality allows for the optimization of the corporate structure without the reorganization acting as a taxable event that affects the liquidity or the tax base of the absorbing or absorbed company.

What should be done

In the event of a merger by absorption operation within a group environment, it is necessary to verify that the requirements demanded by Law 27/2014 are strictly met. The existence of valid economic reasons is a determining factor to ensure access to the special regime. It is recommended to analyze the documentation that proves the purpose of the reorganization to guarantee the legal certainty of the operation.