The TEAC establishes guidelines on tax advantages and fraud in restructurings.

The removal of the effects of the tax advantage in cases of improper application of the tax neutrality regime in restructuring operations.

In a Resolution dated April 22, 2024, which constitutes doctrine, the Central Economic-Administrative Court (TEAC) ruled that when a restructuring operation under the tax neutrality regime is declared to have the primary objective of tax fraud or evasion, only the effects of the "tax advantage" obtained should be eliminated as they materialize.

The Court examined a non-monetary contribution of shares from an operational entity, where undistributed profits (reserves) were accumulated, by an individual to a holding company, applying the Special Regime for Mergers, Spin-offs, Asset Contributions, and Share Swaps (RFEAC).

After analyzing the operation, the Court concurred with the Tax Inspection's view that the operation should be excluded from the RFEAC, as its sole purpose was tax savings derived from the holding company receiving the accumulated reserves (dividends) instead of the individual, thereby taking advantage of the exemption regime for dividend distributions between entities.

Thus, the anti-abuse clause provided in article 89.2 of Law 27/2024, of November 27, on Corporate Income Tax, applies. This clause states: "Verification actions by the tax administration that determine the total or partial non-application of the special tax regime due to the provisions of the previous paragraph will exclusively eliminate the effects of the tax advantage."

However, regarding the application of the aforementioned provision, the Court ruled that only the effects of the tax advantage obtained should be eliminated as they materialize. Therefore, unlike the Tax Inspection's view—where the entire latent capital gain derived from the undistributed profits at the time of the contribution was attributed to the individual—the Court considered that adjustments should only be made as the abusive effect occurs. In this case, it implies attributing to the individual the profits generated by the operational entity up to the time of its contribution to the holding company, as the latter receives the accumulated profits (via dividends or gains from a transfer).

Consequently, the Court determined that only the effects of the tax advantage should be regularized and attributed as the effects of the abuse resulting from the improper application of the RFEAC occur.

It is worth noting that last July, the General Directorate of Taxes issued a binding consultation, V2214-23, on the effects of the regime. This consultation is relevant as it determined that the tax advantage, whose effects should be eliminated in cases of fraud in restructuring operations under the neutrality regime, is not the deferral of the generated income, as this is inherent to the regime itself.

Finally, it is important to note that the effects of the obtained tax advantage and its attribution may vary depending on the operation covered by the RFEAC when it is deemed inappropriate. Therefore, it is recommended to analyze these types of restructurings in detail to understand the exact implications and minimize potential associated risks.