Corporate reorganisations: new limits on denying the FEAC regime

Application of the anti-abuse rule must comply with the principle of proportionality

In its judgment 949/2026 of 20 July 2026, the Spanish Supreme Court established an important criterion regarding the consequences of applying the anti-abuse rule under the FEAC regime governing the special tax regime for mergers, divisions, contributions of assets and exchanges of shares.

The case and application of the FEAC regime

The case arose from the incorporation of a holding company through various transactions, including contributions in kind of shares and equity interests. The transaction was carried out under the special tax regime for mergers, divisions, contributions of assets and exchanges of shares, allowing taxation of the capital gains arising from those contributions to be deferred.

However, the Spanish Tax Authorities concluded that the requirements for applying the special regime had not been met and reassessed the transaction, subjecting the latent capital gains to Personal Income Tax. The tax advantages identified by the Tax Authorities included a reduction in the taxation of dividends, Wealth Tax and, potentially, Inheritance and Gift Tax.

Can the FEAC regime be denied in full?

The key issue was whether application of the anti-abuse rule contained in former Article 96.2 of the previous Corporate Income Tax Law necessarily required the FEAC regime to be denied in full or whether the adjustment should instead be limited to correcting the tax advantages abusively pursued.

The Supreme Court adopted the latter interpretation. It held that the anti-abuse provision implicitly incorporates a principle of proportionality, including under the legislation preceding the current Corporate Income Tax Law.

Consequently, the finding that a transaction lacks valid economic reasons does not automatically entail the elimination of every effect of the special regime. The tax adjustment must target the specific tax advantages abusively sought, which must have been identified by the Tax Authorities in the relevant tax assessment.

Deferral of capital gains and enhanced reasoning

This reasoning has a particularly significant consequence for the deferral of capital gains. The Supreme Court accepts that the Tax Authorities may deny the deferral and tax the latent gains, but only where they demonstrate, through enhanced reasoning, that obtaining that deferral was the principal objective pursued through the transaction.

The evidence clearly supporting that conclusion must also be identified.

In the specific case, the Supreme Court upheld the appeal, annulled the contested decisions and recognised the taxpayer's right to reimbursement of the amounts paid as a consequence of denying the deferral, together with the corresponding late-payment interest.

A limit on tax adjustments involving the FEAC regime

The judgment therefore establishes an important limit on tax adjustments involving the FEAC regime: the existence of an abusive tax purpose does not, in itself, allow all favourable tax consequences of the transaction to be indiscriminately eliminated.