Tax auditors are only allowed to review the neutrality regime at the company electing it

This decision examines a case in which individuals had made a non-monetary contribution of a line of business to a company. The beneficiary company of that line of business elected to apply the special deferral regime set out for business reorganizations in the corporate income tax legislation.

The individuals had previously filed a request for a binding ruling request with the Directorate General for Taxes, which confirmed that the special deferral regime could be elected for the described restructuring transaction because, among other elements, the reasons for performing the transaction were valid.

Despite this, the tax auditors adjusted the tax returns of the individuals, arguing that the special deferral regime should not be allowed because (i) there were no valid economic reasons for the restructuring transaction performed and (ii) they had not evidenced the existence of an aim other than obtaining a tax advantage.

In a decision rendered on October 15, 2018, the Central Economic-Administrative Tribunal (TEAC) concluded, however, that verification of the requirements for applying the special deferral regime must be done at the company electing to apply it. In the case of non-monetary contributions, the right to elect this special regime is exercised by the transferee company (i.e. the beneficiary of the contribution).

With this in mind, since there was no evidence that the special deferral regime had not been allowed at the transferee company, TEAC held that the adjustment made to the shareholders had to be reversed.