Tax treatment of entirely participated absorbtion

On the 3rd of June 2009 the new law on structural modifications in corporations entered into force in Spain. In the light of the simplifications introduced by this law, in this article we briefly analyse how the to interpret the option to choose for the regulation of the special fiscal regime concerning company restructuring. We analyse the event of an absorption of an entirely participated company.

From a corporate law point of view a common merger document is not required, as long as the general shareholders meeting exercises the option for the special fiscal reorganisation regime, and includes this in its minutes. The exercise of this option shall be included in the unanimous merger decision of the absorbing company. However, this is not the case in the event of cross-border merger, even be it intra-communitarian art 49.1) (L 3/2009 art 49.1)

Also the Sociedad Anónima and the Comanditaria por Acciones are excluded from this simplyfied procedure. With a Sociedad Limitada, the Spanish equivalent of a limited liability company it will work just fine.

if the merger agreement has been adopted unanimously in a general shareholders meeting with all shareholders present or represented, the requirements regarding the merger are very reduced. Just to name a few: the rules on the merger plan and -balance, the information regarding the aforementioned, as well as the call of the shareholders meeting will not be applicable. Also the requirement that the statutory directors of both companies subscribe a common merger plan.

The DGT (Dirección General Tributaria) understands that the option for the special fiscal regime of company restructuring is legitimately executed if reflected in the Notary Public deed reflecting the aforementioned shareholders decision. Hence the common merger plan exceptionally is not a fiscal requirement for the special regime, and the opt in of the merger can be legitimately inscribed both in the Commercial Registry and the Fiscal Administration.