Spanish Corporate income tax regulations include a special tax system applying to restructuring transactions, which is based on tax neutrality. Such system is the adaptation of Spanish regulations to the Council Directive 2009 / 133 / EC, whose purpose is not to hamper restructuring transactions as a result of the tax rules of member States.
Tax – neutrality in corporate restructuring transactions
Companies undertaking corporate restructuring transactions can enjoy the tax – neutrality system, as long as they can evidence that they are based on sound business reasons. It is therefore essential that, prior to their undertaking, your company has the means of proof to evidence the existence of such reasons as well as the absence of tax evasion or tax avoidance purposes.
✔ The Council Directive substantiates the existence of a system favourable to restructuring transactions on the fact that “mergers, divisions, partial divisions, transfers of assets and exchange of shares concerning companies of different Member States may be necessary in order to create within the Community conditions analogous to those of an internal market and in order thus to ensure the effective functioning of such an internal market. Such operations ought not to be hampered by restrictions, disadvantages or distortions arising in particular from the tax provisions of the Member States. To that end it is necessary, with respect to such operations, to provide for tax rules which are neutral from the point of view of competition, in order to allow enterprises to adapt to the requirements of the internal market, to increase their productivity and to improve their competitive strength at an international level”.
✔ The tax – neutrality special system applies, in general, to all the transactions comprising it. However and as an anti abuse clause, it does not apply when the transaction has as its main purpose tax evasion or tax avoidance. In addition to it, there is another autonomous clause which does not permit the application of this system, irrespective of whether or not the main purpose is not tax evasion or tax avoidance, and it applies when the transaction is not done for valid economic reasons, such as the restructuring or rationalization of the activities of the participating companies.
✔ The absence of fraud or the existence of economic reasons is not always easy to demonstrate, especially in the course of a tax audit.
Therefore and because prevention is better than cure, it is recommendable to file a written binding consultation to the Spanish General Directorate of Taxes (GDT), prior to undertaking the transaction, in which, in view of the information supplied, the GDT can evaluate on the existence of business reasons, With this, your company will accomplish the necessary tax preventions that the magnitude of this type of transactions deserve, given that the Spanish tax authorities will be subject to the answer to the consultation, as it shall be binding.