The Spanish General Directorate for Taxation endorses the application of the tax neutrality regime in mergers by absorption within corporate simplification processes

In binding consultation V2402-24, dated November 25^th, 2024, the General Directorate for Taxation (DGT) examined a transaction in which a company belonging to a tax consolidation group absorbed a subsidiary that, in turn, was the parent entity of a subgroup. The reasons provided for the transaction included simplification of the corporate structure, improved cost efficiency, and the continuation of the company’s shareholder remuneration policy. Additionally, it was noted that eliminating an intermediate link in the corporate chain would reduce the effective tax cost of 1.25% applicable to intra-group dividend distributions under article 21 of the Spanish Corporate Tax Act (LIS).

Relying on the case law of the Spanish Supreme Court (TS) and the Court of Justice of the European Union (CJEU), the DGT emphasized that the anti-abuse clause in article 89.2 of the LIS allows for the presumption of tax fraud or avoidance in cases where no valid economic reasons exist. However, the DGT clarified that this presumption does not imply that such economic reasons constitute an essential or sine qua non requirement for the application of the tax neutrality regime.

The tax authority rejected a restrictive interpretation of the anti-abuse clause that would impose a “reverse economic choice”, requiring taxpayers to necessarily select the alternative that results in a higher tax burden. In this regard, the DGT concluded that the proposed corporate restructuring cannot be deemed abusive solely because it results in tax savings, provided that other valid business reasons justify the transaction.

With this ruling, the DGT strengthens legal certainty for corporate groups engaging in corporate simplification processes, clarifying that the mere existence of a tax advantage does not automatically invalidate a business restructuring for the purposes of the special tax regime for mergers and demergers.

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