When restructuring makes sense
The triggers are usually recognisable. A property portfolio exposed to the risks of the trade. A single company holding activities that call for entirely different management. A second generation coming in and needing a structure that allows the estate to be divided without breaking the business. An investor willing to back the operating company but not the real estate. Or a future sale that is better prepared well in advance.
Each of those aims calls for a different structure, and they do not all withstand a subsequent tax audit equally well. The work therefore begins before the transaction is chosen, by defining precisely what is being sought and what cost the client is prepared to accept if the Spanish tax authorities take a different view.
Demergers and separating the property portfolio
The demerger is the usual route for moving real estate out of a trading company, and also where files most often fail. The tax neutrality regime under Chapter VII, Title VII of the Spanish Corporate Income Tax Act (Ley 27/2014, Impuesto sobre Sociedades) allows the transaction to proceed without immediate taxation, but it rests on conditions that are tested at audit, not on the day the deed is signed. We examine the current administrative position in Moving real estate out of the trading company and, for demergers between family branches, in Splitting a family property company between two branches.
Branch of activity and proportionality
The form chosen sets the evidential burden. In a full demerger with strictly proportional allocation of shares, the separated blocks need not constitute a rama de actividad, a going-concern branch of activity. In a partial demerger, and in a non proportional full demerger, they must, and it must further be shown that the activity already existed within the company being demerged, with its own organisation and resources. We settle that question before the general meeting is convened, because it determines whether the transaction is defensible at all.
Valid economic reasons and the supporting file
Article 89.2 of the Act disapplies the regime where the transaction is carried out with the sole purpose of obtaining a tax advantage. We prepare the supporting rationale by connecting the reorganisation to the continuity and development of the business, the standard set by the Spanish Supreme Court, and we place the evidence on file as it arises rather than when the enquiry letter lands.
Mergers, contributions in kind and share exchanges
Alongside demergers, the regime covers mergers, contributions in kind of a branch of activity and share exchanges. These are the transactions through which a holding company is created, a group with redundant entities is simplified, or scattered property management is brought under a single company. We advise on the full sequence, including linked transactions, and on how it fits with the participation exemption of article 21 and, where relevant, with the Spanish tax consolidation regime.
Family business and generational transition
In a family business, restructuring is rarely an end in itself. It is normally the step that precedes an orderly succession, the separation of family branches or the professionalisation of management. We handle that dimension together with estate planning, testing the effect of the transaction on the family business relief under the Impuesto sobre el Patrimonio (Spanish net wealth tax) and on the reduction available under the Impuesto sobre Sucesiones y Donaciones (Spanish inheritance and gift tax). Isolating real estate in a company that fails the economic activity test can cost more than the restructuring saves.
Later audits and defending the transaction
The regime is not settled on the day of the deed. Rulings from the Dirección General de Tributos state expressly that the assessment may be revisited in the light of circumstances before, during and after the transaction. And where the authorities identify an undue tax advantage, the correction is made in the tax year in which that advantage is realised, which may be long after the reorganisation itself.
We therefore stay with the transaction beyond closing: an ordered documentary file built from the outset, consistency between later conduct and the stated purpose and, if it comes to it, representation through the audit and before the economic administrative tribunals.
At Lex·on corporate and tax advice are inseparable. A well conceived restructuring solves a business problem and holds up afterwards. A poorly conceived one solves the problem and leaves behind a contingency that surfaces years later.