Who takes on the tax rights and obligations when several restructuring transactions take place over time?
28/07/2022 Uría Menéndez (uria.com)
When companies are extinguished or dissolved but not liquidated, any outstanding tax obligations are transferred to the resulting persons, entities or beneficiaries of the transaction (article 40.3 General Taxation Law (“GTL”)). Where there are several resulting persons or beneficiaries, they are all jointly and severally liable to the tax authorities in accordance with the provisions regulating the situation where several parties are subject to a tax obligation (article 35.7 GTL and article 107 of the General Tax Management and Inspection Regulation). But this matter has not always been clear (see National Court judgment of 23 February 2011 or Tax Authority consultation number 1801-06), perhaps because under commercial law (articles 80 and 91 of the Company Restructuring Law) liability is transferred to whomever the restructuring project specifically designates, meaning that all other companies involved in the transaction are only liable on a subsidiary basis (although jointly and severally liable with each other). The transferor or spun-off company is also vicariously liable if it is not extinguished as a result of the transaction.
Tax rights and liabilities can also be transferred to acquiring companies in transactions under the tax neutrality regime, whether or not all assets and liabilities are transferred, although when they are not only the tax rights and liabilities relating to the transferred assets and rights are transferred. As an exception, where the tax rights are tax loss carry-forwards, they are only transferred to the acquirer when either the transferor is extinguished or the branch of activity whose results have generated the tax loss carry-forwards is transferred. This is what article 84 of the Corporate Tax Law establishes.
And now the uncertainties: in a tax reorganisation in which company A first carries out a partial spin-off in favour of company B, who acquires a loss-making branch of activity (i.e. with a negative taxable amount), which some months later is totally spun-off – from company A – to companies C and D, which are allocated the tax losses not transferred to company B, can company C or D submit amended returns or corrections to change how company A offset the tax losses and thus affect how the tax losses were allocated in the context of the total spin-off? As joint and several beneficiaries, it seems that they could, provided that they compensate the other resulting entities for the part of the extinguished claim that they had been assigned under article 1143 of the Civil Code. But, could they do so when the tax losses in question are those that were assigned to company B? The answer to this question is not as straightforward, although one would think that they should not be entitled to something to which they have no right because it has already been assigned to another party.
In any event, problems such as this arising in complex company reorganisations could be avoided if tax legislation were to follow the commercial law approach.