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Tax neutrality in the offsetting of tax losses

Baker Tilly Apr 1, 2024

The Directorate General for Taxation clarifies the treatment of tax losses in a company merger.

As a result of the corporate merger of two entities, the absorbing entity (A) would subrogate into a part of the negative tax bases pending compensation in the absorbed (B). However, the rest of the negative tax bases could not be transferred due to the limitation set in the fiscal neutrality regime according to Article 84.2 of the Corporate Income Tax Law.

It is questioned whether the application of that limit should be carried out by first eliminating the oldest negative tax bases, some of which were generated when the absorbed entity belonged to another tax group or was taxed under an individual regime. The Directorate General of Taxes (Binding Consultation 3198-23) recalls its reiterated doctrine, indicating that the application of the fiscal neutrality regime allows the acquiring entity to subrogate into the tax rights and obligations of the transferring entity, attributable to the transferred goods and rights.

Therefore, if the fiscal neutrality regime is applied, the negative tax bases generated in the absorbed society (B) can be compensated in the absorbing society (A), meeting the requirements and limitations established in Article 84 of the Corporate Income Tax Law. This is valid from the moment they are subject to compensation by the acquiring entity, regardless of the order followed in their application in the absorbing society.

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