Spain: Regularisation under the tax neutrality regime in Corporate Income Tax only allows the elimination of the abusive tax advantage, including under the TRLIS regime

The special regime for mergers, demergers, contributions of assets, exchanges of securities and transfers of the registered office of a European Company (Societas Europaea) or a European Cooperative Society from one Member State to another within the European Union (known as the "FEAC Regime") allows these types of transactions to be carried out while deferring the taxation of the companies and shareholders participating in them.

Article 89.2 of the Corporate Income Tax Act currently in force (Law 27/2014 of 28 December) provides that the regime shall not apply where the transaction is not carried out for valid economic reasons but merely for the purpose of obtaining a tax advantage, while adding that in tax authority audit proceedings concluding in the total or partial disapplication of the regime, only the aforementioned tax advantage may be eliminated. Article 96.2 of the TRLIS (enacted by Royal Legislative Decree 4/2004 of 5 March), however, did not contain this provision, meaning that the deferral could apparently be eliminated if the application of the regime was denied.

Notwithstanding the foregoing, the Supreme Court has concluded (in its recent judgment of 20 July 2026 — appeal no. 6518/2023 — in proceedings in which Garrigues acted) that the anti-abuse clause in Article 96.2 of the TRLIS implicitly contains a principle of proportionality requiring that, once the existence of abusive tax advantages has been confirmed, the regularization be limited to the denial of those advantages, provided they are identified as such in the tax assessment. According to the court, therefore, the deferral of unrealized capital gains is inherent in the tax neutrality regime in Corporate Income Tax and, consequently, the regularization cannot automatically result in the denial of such deferral. Only where the Tax Authority identifies the deferral as the principal objective of the transaction - including reinforced reasoning in the assessment and providing evidence clearly indicative of that purpose - may the deferral be denied. Furthermore, the deferral may not be eliminated if the transaction has other objectives.

In short, according to the court, the regime is directly linked to tax neutrality, meaning that a tax advantage, considered in itself, is compatible with the regime. What the regime does not protect are transactions whose purpose consists of obtaining an abusive tax advantage; therefore, outside cases of abuse, the tax advantage will be regarded as legitimate within the framework of lawful tax planning (economía de opción) and, accordingly, should not be eliminated in all cases and circumstances.