Luis Prados Ramos



The Structural Modifications Law, after dealing with the general merger procedure, regulates a series of special mergers, such as the merger by absorption of a wholly-owned company (called abbreviated or improper merger of article 49 LME), the merger by absorption of investee company at 90% (article 50 LME); twin merger and reverse merger (article 52 LME).

To these assumptions we can add, because it has its own characteristics, the case of the leveraged merger of article 34 LME

Special mergers are characterized by constituting a simpler procedure than the general regime, whose basis is article 49 LME.

We are going to refer to twin fusion, which is the one that occurs andBetween companies wholly owned directly or indirectly by the same partner (article 52 LME). It is also considered by the authors who have dealt with the matter that the twin merger regime is applicable in the event that the absorbing and absorbed companies belong to the same partners and in the same proportion.

The immediate antecedent of this precept was Article 250.2 LSA, in the wording given by Law 19/2005 of November 14, which stated that "the same rule (that of simplified mergers) will apply when (...) the absorbing company and the absorbed company are wholly owned, directly or indirectly, for a third.”.

The distinction between the two articles (52 LME and 250 LSA), as can be seen, lies in the fact that the Corporations Law required that the sole shareholder of the absorbing and absorbed companies must be another company (for a third), while the Structural Modifications Law allows that sole partner to be a physical or legal person (the same partner).

The legal approach

From the point of view strictly legal The twin merger has the following characteristics, as a result of the joint interpretation of articles 49 and 52 LME:

1.- That it is not necessary to include in the merger project the 2nd and 6th mentions of article 31 and, except in the case of an intra-community cross-border merger, the 9th and 10th mentions of the same article.

Due to the very nature of this merger, as it will generally be adopted by the Universal Board and unanimously, it will not be necessary, based on article 42, to previously publish or deposit the merger project, excepting the other requirements provided for in said regulation.

2.- The merger can be carried out by means of a capital increase of the absorbing company or the increase in equity that occurs in the absorbing company can be reflected as a reserve.

The difference between carrying out the merger in one way or another derives from the very consideration of the reserves against the social capital, since the reserves can be used for any purpose, including the distribution between partners, as long as there are no losses that have to be covered previously, while the disposition of the share capital, as a guarantee of the creditors, is subject to strict limits that derive from the regulation of the reduction of capital.

From a formal point of view, if a capital increase is made, it will be necessary to set its amount and, where appropriate, the share premium, based on the absorbed assets.

The tax approach

The problems that have arisen with this type of merger, as always have gone hand in hand with the fiscal legislation and its interpretation by tax agencies, since mergers have a special tax regime, of tax neutrality, which is what encourages their practice. Regarding the tax regime of mergers, it is worth seeing this other entrance from the blog.

To enjoy this special tax regime, it is necessary to meet the requirements established by the Corporate Tax Law, and it turns out that this law does not always use the same concepts as the substantive legislation.

For this reason, and under the validity of the Public Limited Companies Law, the General Directorate of Taxes came to interpret that the cases of twin mergers participated by the same individual partner, provided that the capital increase of the absorbing company was dispensed with ( simplified procedure), were not properly protected mergers, and thus did not benefit from the special tax regime.

This interpretation ceased to make sense when the Structural Modifications Law was published, because as a result of the aforementioned article 52 LME it is enough that the acquiring company and the absorbed company are wholly owned directly or indirectly by the same partner, and since this partner is not distinguished, it can be a natural or legal person.

Even so, the tax administration sought other elements to exclude the application of the special tax regime, and which derived from the fact that if a capital increase was not produced in the twin merger, the requirements established by the tax law were not met. corporate tax to consider the operation as a merger, even if commercially so, due to the non-existence of attribution of values to the partner of the extinguished/absorbed companies, as literally required by article 76 of the LIS, before 83. All with the exception of mergers improper (when the absorbed company is wholly owned by the absorbing company) in which the capital increase was not considered necessary.  Consultation of December 9, 2009 (V2690-09).

The fears of the tax administration in these mergers

The fears of the tax administration derived, points out José Luis Prada Larrea, that twin mergers could become a mechanism for aging the portfolio of individuals, who could remanate latent capital gains in the oldest holdings, amortizing the titles of more recent ownership (it was enough to choose, as absorbent, that entity whose capital was represented by the oldest shares in the partner's assets); and on the other hand, that the twin merger could take place between companies in which the shareholdings of the partner were held, not directly, but indirectly by a third party -even if it was a company-, since this possibility -indirectly- opened the door to other considerations, such as being able to appreciate, eventually, the existence of concealed equity transfers of shares between direct and indirect partners, with uncertain tax effect.

This criterion of the Tax Administration, which is reached through a forced interpretation of the law, has fortunately been abandoned and since 2011, there are binding consultations, which indicate that even when the absorbed and absorbing companies are wholly owned by the same partner of "direct" way It does not seem absolutely necessary for such an attribution of titles to take place, i.e. a capital increase.

The solution.

The argument is based on the fact that even when this attribution of values of the absorbing company does not take place, since there is only one partner in the entity that participates in the operation, the patrimonial situation of the latter does not vary substantially since it continues to participate in the same patrimony before and after the merger operation, with the particularity that the value of the participation in the absorbed company increases the value of the participation held in the absorbing company after the merger, thus fulfilling the neutrality required in chapter VII of title VII of the LIS for the application of the special tax regime. Binding Consultation V3407-15, of November 6, 2015 of the General Sub-directorate of Income Tax of Legal Entities.

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