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DGT Tax Ruling V2214-23: Impact on Tax Neutrality Regime

Baker Tilly Feb 5, 2024

In its binding consultation V2214-23, issued on July 27, 2023, and made public on September 27, 2023, the Directorate General of Taxes (DGT) represents a significant milestone in the Administration's stance on the application of the anti-abuse rule within the tax neutrality regime. The DGT aligns with the interpretation of both national and European Union courts, asserting that the absence of valid economic motives in these transactions should not automatically result in the denial of the inherent tax deferral associated with the regime. Instead, the burden of proof regarding the existence of abuse should be reversed and scrutinized by tax authorities.

This ruling complements other taxpayer-friendly decisions in anti-abuse matters issued in 2023, including Supreme Court judgments on the burden of proof for abuse in dividend payments to EU parent companies (e.g., STS of June 8, 2023, rec. 6528/2021). The DGT's conclusion holds particular significance, given that the anti-abuse rule within the neutrality regime typically does not require the initiation of conflict resolution procedures, thus lacking the guarantees provided by advisory committee reports.

This consultation establishes legal certainty on a matter of utmost importance in these types of transactions, where the primary risk often lies in the emergence of tacit capital gains within the shares. The DGT clarifies that the tax adjustment to be made in cases of abuse in these transactions is not related to the tax deferral itself, as it is an inherent consequence of the neutrality regime. This clarification reduces the risk of the Administration levying taxes on tacit capital gains within the transaction conducted under the neutrality regime. However, there remains a lack of specificity regarding the precise tax adjustment in the case analyzed, leaving this assessment subject to the taxpayer's interpretation.

Furthermore, the absence of a pronouncement on the economic motivation behind such transactions is notable. This aspect is crucial in assessing the risk of litigation, yet the DGT has chosen not to address it. This shift in the DGT's stance underscores the increasing necessity for thorough analysis prior to undertaking these operations.

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