FEAC Regime: Restructure Your Group Without Triggering Tax on Unrealised Gains

Spain’s special tax regime for mergers, demergers, business unit contributions and share swaps — Articles 76-89 of the Corporate Income Tax Law (LIS), commonly referred to as the FEAC regime — allows business groups to reorganise, separate activities, create holding structures or prepare for the entry of financial partners without paying Corporate Income Tax on the unrealised gains embedded in the transferred assets or shares. BMC’s tax restructuring team designs and executes these operations ensuring both technical compliance and robust documentation ahead of any AEAT review.

When restructuring triggers Spanish tax — and when it can be deferred

Any transfer of assets or shares between companies normally generates a taxable gain in the transferor and, where applicable, in the shareholder. If an industrial group holds a factory valued at €3M with a tax base of €800,000, an open-market sale would produce a gain of €2.2M taxed at 25% in IS (€550,000). Under the FEAC regime, that tax can be deferred indefinitely — provided the operation meets both the formal and material requirements of the law.

Deferral is not exemption. The unrealised gain is transferred to the beneficiary, which will bear the tax when it eventually sells the assets outside the special regime. The FEAC regime is a tool for tax-efficient timing, not permanent elimination of the liability. Its value lies in enabling the restructuring the business needs — separating activities, creating a holding, preparing a partial sale — without tax being the factor that blocks or delays the commercial decision.

The 7 operations that qualify under the FEAC neutrality regime

Merger (fusión): the absorbing or newly created company receives all assets of the target, which dissolves without liquidation. Shareholders of the target receive shares in the absorber. Cash compensation may not exceed 10% of the par value of the issued shares.

Full demerger (escisión total): the demerging company dissolves without liquidation and transfers all its assets in block to two or more beneficiaries. Shareholders receive shares in the beneficiaries proportionally. No requirement that the transferred blocks constitute autonomous business units.

Partial demerger (escisión parcial): the demerging company transfers one or more business units to one or more beneficiaries while retaining at least one business unit. Critical requirement: each transferred block must constitute a business unit — an organisation of material and human resources with sufficient functional autonomy to operate independently. The AEAT scrutinises this requirement closely in financial demergers (separation of cash, property or minority stakes without an operating business behind them).

Business unit contribution (aportación de rama de actividad): the transferor contributes a business unit to a beneficiary and receives shares in the beneficiary. Unlike the partial demerger, it is the transferor — not its shareholders — who receives the shares. This creates a subsidiary relationship. Requires autonomous business unit status.

Special non-monetary contribution (aportación no dineraria especial, Article 87 LIS): transfer of shares that grant the acquirer majority voting rights, or that complete a majority stake already held. The transferor receives shares in the acquirer. No business unit requirement — the subject of the contribution is the shares themselves.

Share swap (canje de valores, Article 76.5 LIS): the acquirer exchanges its own shares for shares in the target, obtaining majority voting rights. The target’s shareholder receives shares in the acquirer. This is the standard operation for constituting holding companies through a share-for-share exchange.

Global transfer of assets and liabilities (cesión global de activo y pasivo): a wholly-owned subsidiary in liquidation transfers all its assets in block to its sole parent in exchange for the cancellation of the parent’s shares in the subsidiary.

The valid commercial rationale: the most critical requirement

The FEAC regime does not apply automatically. Article 89.2 LIS excludes operations whose principal objective is tax fraud or tax evasion. The AEAT has developed an extensive body of guidance on what constitutes a valid commercial rationale, and CJEU case law (Leur-Bloem and subsequent rulings) confirms that the burden of proof rests on the taxpayer.

Typically accepted rationales: separation of activities to facilitate partial external investment; creation of a holding to centralise dividends and plan succession; merger to achieve economies of scale or eliminate functional overlap; demerger before selling a business line to a third party; reorganisation to meet the minimum threshold for a SOCIMI or a fiscal consolidation group.

Operations at risk of challenge: demerger of unproductive assets (cash, property, minority holdings) without a clear operational justification; business unit contribution that in reality contains only assets with no independent organisation; share swap between related parties with no effect on group management.

The business rationale memorandum is the central document of any FEAC operation. It must be prepared before execution, describe the group’s prior situation, the commercial need driving the reorganisation and how the resulting structure better addresses it than non-fiscal alternatives. A generic or retrospective memorandum is the primary risk factor in an inspection.