Economic motivation in a company merger transaction

By Jesús Ruíz Ballesteros, Ruiz Ballesteros Lawyers and Tax Advisors

The reasons for corporate reorganisation are debatable if the absorbed company is inactive. Today we bring you a resolution of the TEAR of Catalonia, dated 12 February 2018.

This ruling, no. 08/09472/2015 of the TEAR of Catalonia, analysed whether there were valid economic reasons for rationalisation or the restructuring of economic activity that were suffcient to permit the application of the special tax deferral regime in the company merger operation.

The case we have:

  1. a company (A) incorporated in 2005, which had been providing personal assistance services for guests; and
  2. a company (B) incorporated in 2006, whose corporate purpose was the design, creation and marketing of websites, as well as the sale of computer hardware and software.

In February 2010, the two companies merged through the absorption of A by B, and this action was covered by the special administration of Chapter VIII of Title VII of the Companies Act at the time. The accounting retroaction of the operation was set at 31 July 2009 – in other words, from this date, all operations of the absorbed company (A) were considered to have been carried out by the absorbing company (B).

The merger was subsequently reviewed by the tax authorities via the tax inspectorate, which considered that there has been no valid economic reason for the merger, as in the inspector’s opinion, the only reason for the merger was to take advantage of the absorbed company’s negative tax bases. Moreover, the absorbed company had ceased to have any commercial activity, so it would be diffcult for it to take advantage of these negative tax bases.

The tax inspector therefore considered that the merger should be governed by the application of Article 15 of the Corporate Income Tax legislation.

Decision of the TEAR

There are two relevant issues in this case:

  1. The absorbed entity was an inactive company at the time of the merger.
  2. The absorbed company had hardly any valuable assets that could be transferred to the acquiring company (with the exception of tax claims against the tax authorities).

It was concluded that there was no valid economic reason to allow the merged company to benefit from the special tax neutrality regime, and the liquidation proposed by the tax inspector and penalty proceedings were confirmed.

Jesús Ruíz Ballesteros

Jesús Ruíz Ballesteros 

GGI member firm
Ruiz Ballesteros Lawyers and Tax Advisors
Law Firm Services, Tax
Marbella, Spain
T: +34 952 77 98 74
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Ruiz Ballesteros Lawyers and Tax Advisors is a firm of lawyers, economists and tax advisors established more than 15 years ago. Highly qualified professionals cover all areas of legal, tax, accounting and commercial requirements for clients. Continuous training, excellence, taking care of every detail, and upholding high ethical standards are the guiding principles of the firm.

Jesús Ruíz Ballesteros  is the Founder and Director of Ruiz Ballesteros. Holding an undergraduate degree in business and finance, a master’s in taxation, as well as a degree in law, Jesús is an innovative entrepreneur and an expert in the Spanish taxation system, international taxation, and corporate commercial law. He is also the developer of Paxtum, the first legal app in Spain. In 2018, Jesús Ruíz Ballesteros was awarded the Cruz Blanca for Civilian Merit by the Ministry of the Interior of Spain.

Published: M & A Newsletter, No. 02 Spring 2022 l Photo: swalker3696 -


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