The Royal Decree-Law 5/2023, of June 28, regulates the legal framework for structural changes of commercial companies in Spain, instead of the already repealed Law 3/2009, of April 3, on structural changes in commercial companies.
Figures Regulated by RDL 5/2023, the Partial Spin-off
Among the figures regulated by Royal Decree-Law 5/2023 is the so-called partial spin-off, which involves the bulk transfer, by universal succession, of a portion of the company’s assets forming an economic unit. The transfer takes place to a newly created or existing company; in return, the shareholders of the splitting company receive shares from the beneficiary company of the spin-off, proportional to their respective stake in the splitting company.
Therefore, it is an advantageous modification in economic transactions that allows separating a specific economic activity from one company and transferring it in its whole to another. In this process, the shareholders of the first company retain ownership of both entities: the splitting and the beneficiary company. Moreover, as a structural change, this transaction typically enjoys a substantially more favourable tax regime than other asset transfer methods. In general terms, the spin-off operation tends to be tax-neutral.
Partial Spin-off: Requirements and Benefits
The essential element for a partial spin-off to be fully valid and benefit from the special tax regime is that the assets being split and contributed to the beneficiary company form an authentic economic unit. In other words, it is not sufficient for the transmitted assets to consist of specific individualised assets; they must constitute a set of patrimonial elements, assets and liabilities that represent, from an organisational and structural perspective, an autonomous activity or business capable of operating in legal transactions with its resources. In practical terms, the ‘economic unit’ concept links to the tax interpretation of an ‘activity branch.
In other words, only those transactions in which the segregated assets constitute an autonomous and functional economic unit, meaning that it allows for the independent development of an operation or economic activity in the beneficiary entity, maintaining under the ownership of the splitting entity patrimonial elements that also constitute one or several economic units, can be considered as a partial spin-off in the strictest sense. This consideration will lead to the application of the structural changes regime, which essentially involves the bulk transfer of assets through universal succession and without the need for the consent of third parties regarding the operation. Additionally, they will benefit from improved tax treatment for both the involved companies and their partners, with the absence of taxation in the principal taxes, namely, Corporate Income Tax (CIT), Personal Income Tax (PIT), Value Added Tax (VAT), and Stamp Duty Taxes (Property Transfer Tax, Documented Legal Acts Tax, and Corporate Transactions Tax).
Prevention of Frauds and Practical Aspects in Partial Spin-offs
Traditionally, the ultimate foundation underlying the requirement to transfer an economic unit has been that the spin-off has a valid economic/business motive. This ground should be oriented towards an authentic restructuring and/or reorganisation of a company’s economic activities, aiming for more effective exploitation of its tangible, intangible, and personal assets through the distinct management of each business within the company.
This way, it aims to prevent fraudulent or self-interested actions to the detriment of creditors, such as relocating valuable isolated assets from one company to another. It also aims to prevent tax evasion by adopting a special tax regime where the general should apply. For example, the transmission of isolated assets that lack a connection among themselves rather than constituting an authentic economic unit.
In other words, the Spanish legislation aims to facilitate corporate restructuring operations rather than granting exemptions for transfers of isolated assets.
Therefore, before carrying out a partial spin-off operation, it is decisive to analyse the business subject to transfer and assess if it can effectively benefit from the commercial and tax-favoured regime applicable to this figure. Otherwise, the transaction should be carried out through other means, thus avoiding potential sanctions foreseen in the Spanish legal framework.
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