Corporate reorganisations ( including mergers, demergers, contributions of assets and share exchanges) are frequently used to restructure business groups, isolate operational risks and separate different lines of activity.

In the context of non-financial partial demergers, the tax treatment largely hinges on a decisive factor: the assets transferred must constitute a branch of activity, and the transaction must be supported by valid business reasons. Where these conditions are met, the transaction may fall within the special tax neutrality regime for corporate reorganisations set out in Chapter VII of Title VII of the Spanish Corporate Income Tax Act (Law 27/2014).

Binding Tax Ruling V1956-25 (16 October 2025) is particularly relevant because it addresses a situation frequently encountered in family-owned business groups: the separation of real estate assets used for leasing from the operating business, through the transfer of the property portfolio to a beneficiary entity while the operating company retains the core commercial activity.

This structure often arises in family businesses where the operating company has historically generated profits that are subsequently reinvested in real estate holdings. As that property portfolio grows, it becomes increasingly advisable to introduce a more structured corporate and tax framework.

From the perspective of tax advisory practices in Mallorca, these reorganisations are common in family-owned structures seeking to separate the operating vehicle from a real estate or patrimonial vehicle, thereby isolating risks, improving governance, facilitating financing and enabling the potential entry of external investors.

1. STA considerations: separation of real estate assets from the operating business

In the case analysed by the Spanish Directorate-General for Taxation (Dirección General de Tributos – DGT), the consulting entity carried out a wholesale distribution business in frozen products. In parallel, it owned several properties that were leased to third parties and managed through an organisational structure that included material resources and one full-time employee dedicated to the activity. Some of the properties were also used directly in the commercial activity (for example, warehouses used for the operating business).

The restructuring contemplated consisted of a partial demerger under which the company would transfer its entire real estate portfolio, together with the associated liabilities, to a beneficiary company. The demerged entity would retain the assets and liabilities linked to the wholesale distribution activity.

From an operational standpoint, the properties that had previously been used within the operating business would, once transferred to the beneficiary entity, be leased back to the demerged company, thereby becoming functionally integrated into the leasing activity carried out by the beneficiary company.

2. Legal and tax framework: partial demergers, branches of activity and the FEAC regime

Before analysing the conclusions reached in Binding Tax Ruling V1956-25, it is useful to clarify the legal and tax framework governing these transactions. In corporate reorganisations, the decisive issue is not merely the corporate structure of the transaction but whether the requirements for the special tax neutrality regime are satisfied.

In the case of a partial demerger, the regime applies only if:

1. the transferred assets constitute a branch of activity,
2. the transferring entity retains another branch of activity, and
3. the transaction is supported by valid business reasons, as required by the anti-avoidance clause.

Only when these requirements are met can the transaction benefit from tax neutrality, meaning that the tax effects of the reorganisation are deferred rather than immediately recognised.

If the neutrality regime does not apply, the assets transferred must be valued at market value, which may trigger taxable gains, particularly when the transaction involves the transfer of appreciated real estate assets.

2.1 Partial demerger under Spanish corporate tax law

Under the Corporate Income Tax Act, a partial demerger occurs where a company transfers one or more parts of its assets that constitute branches of activity to one or more companies (either newly created or pre-existing) while the transferring company retains at least another branch of activity (or a controlling shareholding). The shareholders of the transferring entity receive shares in the acquiring company proportionally.

2.2 The tax concept of a “branch of activity”

A branch of activity, as defined in Article 76.4 of the Corporate Income Tax Act, consists of a set of assets and liabilities capable of constituting an independent economic unit, able to operate autonomously with its own resources.

The DGT consistently emphasises that the activity must already exist within the transferring entity. It must therefore be possible to identify a distinct organisational structure capable of carrying out the activity independently. The mere transfer of isolated assets is not sufficient.

3. Functional autonomy of the real estate activity: administrative interpretation in ruling V1956-25

The central question addressed in the ruling is whether the real estate assets transferred can properly be regarded as an autonomous business unit, capable of operating independently.

According to the facts presented by the taxpayer:

• a leasing activity existed prior to the proposed transaction,
• the activity had both organisational and human resources, including a full-time employee, and
• the leasing activity would continue after the demerger.

On the basis of these circumstances, the DGT concluded that if the real estate assets transferred constitute a branch of activity, and the transferring company retains another branch (the wholesale business), the transaction may qualify for the tax neutrality regime under the FEAC provisions.

4. Leasing as an economic activity: organisational structure and evidence

Where a partial demerger seeks to transfer a leasing business, the key issue is not simply the existence of real estate assets but whether there is an organised economic activity capable of qualifying as an autonomous business unit.

In practice, the tax authorities tend to examine whether the leasing activity has a minimum organisational structure for management purposes.

For corporate tax purposes, the concept of economic activity is assessed based on the actual organisational structure, which may differ from the criteria applied in other taxes such as VAT or personal income tax.

In many leasing situations, the presence of at least one full-time employee dedicated to property management is typically regarded as an important indicator of an organised activity. Such functions may include tenant management, rent collection, contractual administration, incident management and maintenance coordination.

In the ruling analysed, the existence of a full-time employee dedicated to the leasing activity is expressly highlighted, reinforcing the conclusion that the activity goes beyond the mere holding of assets and constitutes a structured business activity.

5. Checklist to substantiate the existence of a branch of activity

The DGT emphasises that the existence of a branch of activity is ultimately a question of fact, which may be proven through any admissible evidence and verified by the tax authorities during an audit.

For this reason, when implementing FEAC restructurings involving leasing activities, the focus should not be limited to the legal structure of the transaction but should also include the preparation of a robust evidentiary framework.

From a practical standpoint, the following elements are typically essential:

1. Pre-existing leasing activity and identifiable organisational structure.
2. Actual human resources, including a full-time employee performing real management functions.
3. Clear identification of the assets and liabilities attributable to the business unit.
4. Contracts, management systems and operational capacity allowing the activity to function independently.
5. Documented business reasons, reflected in restructuring plans, corporate reports and board minutes.

Although the position expressed by the DGT provides useful guidance, the ultimate outcome in a tax audit will depend on demonstrating that the leasing activity is genuine, operationally autonomous and properly documented, and that the business rationale underlying the restructuring is credible and verifiable.

6. A favourable ruling does not preclude review by the tax authorities

Binding Tax Ruling V1956-25 includes a caution that is frequently found in rulings concerning the FEAC regime: a favourable response to a consultation does not amount to an absolute safeguard.

In its analysis, the DGT takes into account the business reasons invoked by the taxpayer — including corporate rationalisation, risk segregation according to the nature of the assets, strengthening and expansion of activities, facilitating future investment in the operating business, protecting real estate assets, avoiding reputational spill-overs and improving management efficiency — and concludes that the proposed partial demerger could fall within the tax neutrality regime.

However, the ruling also includes the standard qualification that its conclusion is based exclusively on the facts described by the taxpayer, without considering any additional circumstances that might affect the assessment of the main purpose of the transaction.

Accordingly, the DGT expressly notes that the transaction may be subject to subsequent verification by the tax authorities, taking into account all circumstances existing before, during and after the restructuring.

In practice, the DGT does not definitively certify the existence of valid business reasons under Article 89.2 of the Corporate Income Tax Act, as its analysis necessarily relies on the factual description provided by the taxpayer. Consequently, even where the ruling is favourable, the applicability of the FEAC regime remains contingent upon the accuracy of the facts presented and the absence of additional circumstances indicating that the principal objective of the transaction was the achievement of an undue tax advantage

6.1 Review of the transaction before, during and after its implementation

The reference to “prior, concurrent and subsequent circumstances” reflects the standard approach adopted by the Spanish Tax Agency when reviewing reorganisations under the FEAC regime:

• Prior circumstances: the organisational structure of the leasing activity before the demerger (human resources, management processes, accounting traceability and contractual arrangements).
• Concurrent circumstances: the configuration of the assets and liabilities transferred, the corporate coherence of the transaction, intra-group agreements (such as lease-back arrangements) and the documentation supporting the business decision.
• Subsequent circumstances: the actual continuation of the segregated activity and the consistency of the business rationale, with particular attention to events that may undermine the narrative (for example, immediate restructuring steps, chained transactions or subsequent transfers).

This comprehensive approach explains why, even when the DGT indicates that the regime may apply based on the information provided, it explicitly leaves open the possibility of subsequent scrutiny by the tax authorities.

6.2 Potential tax adjustments despite a favourable ruling

If, after reviewing the factual circumstances, the Spanish Tax Agency (AEAT) concludes that the requirements for the FEAC regime are not met, it may issue a tax reassessment, treating the transaction as an ordinary transfer at market value.

Whether penalties may arise will depend on the specific facts and the existence of a tax infringement. In practical terms, however, the key message is clear: the most effective protection lies not merely in obtaining a favourable ruling but in ensuring that the restructuring reflects genuine commercial logic and that the transaction is implemented consistently with the facts described in the consultation.

Conclusion

Binding Tax Ruling V1956-25 provides useful guidance for structuring a partial demerger involving the separation of a leasing business, confirming that the FEAC tax neutrality regime may apply where the transferred assets constitute a genuine branch of activity and the transferring entity retains another operating business.

Nevertheless, the ruling should not be understood as a definitive safe harbour. The applicability of the regime ultimately depends on the economic substance of the transaction and the evidentiary support underpinning it, and the tax authorities retain the power to review the principal purpose of the restructuring and the consistency of the business reasons invoked, taking into account all relevant circumstances before, during and after the transaction.

In practice, the success of such reorganisations depends not only on their legal design but also on the strength of the supporting documentation and the coherence of the underlying business rationale.

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