The Treasury could have to refund millions of euros to many companies for making taxation difficult in the special regime for mergers, acquisitions and spin-offs, better known as the FEAC regime. The possibility is very real, because both the Court of Justice of the European Union (CJEU) and the Supreme Court (SC) are currently analysing whether the Spanish regulations are in line with the European Directive.
The current FEAC regime
The irregularity would be found specifically in the special regime for spin-offs, which would make tax deferral difficult. According to Spanish law, when a company is extinguished and split into two new companies in which the partners do not participate in the same proportion, it is obligatory to pay tax at the time of the creation of the new companies. The tax authorities do not allow in such cases to defer taxation to a later point in time, when the shares are sold. The only exception to this rule is when the assets acquired are separate branches of activity.
This is a very damaging rule for spin-off companies, which normally do not plan to sell. Because many of these restructurings are aimed precisely at promoting generational change.
The position of the European Comission and the Supreme Court
The European Commission considers that the Spanish rule goes against the European Directive because it establishes restrictive conditions instead of facilitating these operations. For this reason, following a letter of formal notice issued in 2019 and a reasoned opinion in 2023, it has referred Spain to the CJEU.
Meanwhile, the Supreme Court has also upheld in an order of 10 April an appeal to determine whether it is in accordance with European law that in spin-offs where the partners do not hold the same proportion of shares, tax is only deferred if the assets acquired represent a distinct branch of activity.
We are therefore at an impasse. It is most likely that the Supreme Court will not make its decision until the Court of Justice of the European Union has ruled.
What to do now
Confianz’s recommendation for companies that find themselves in this circumstance is to pay the tax authorities and immediately appeal the tax assessment. We will then await the pronouncement of the CJEU and the Supreme Court. If the courts conclude that the Spanish rule is not in line with the European rule, all those companies that have asked for a refund and still have the case open will be able to receive what they have paid. To this figure will have to be added interest for late payment of 4%.
Spin-off companies that have paid less than four years ago are also in time to claim.
The Treasury already has to pay back more than 11.2 billion euros
The more than likely rulings against the FEAC scheme would add to the string of judicial setbacks that the Tax Agency has accumulated in recent times. According to the Ministry’s own estimates, the Treasury is already facing the return of more than 11.2 billion euros as a result of the latest adverse rulings. Most of them affect companies. The two most important are:
- In January, the Constitutional Court overturned the 2016 Royal Decree-Law that tightened corporate income tax.
- In May, the CJEU declared illegal the supplement to the Hydrocarbon Tax applied by the autonomous communities between 2013 and 2018.
If your company is in any of these situations, Confianz will advise you so that you can recover the amount paid plus the corresponding interest for late payment.