The Spanish Supreme Court has recently established an important criterion for companies carrying out corporate restructuring transactions under the FEAC regime.
In Judgment 949/2026 of 20 July, the Court clarifies that if the Spanish Tax Agency considers that a transaction pursues an abusive tax advantage, it cannot automatically eliminate all the effects of tax neutrality and tax the capital gains that had been deferred.
Instead, the Tax Agency must identify the specific tax advantage it considers abusive and limit the reassessment to correcting that advantage. Furthermore, if it intends to eliminate the FEAC deferral itself, it must specifically justify that obtaining the deferral was the principal objective of the transaction.
This criterion may be particularly relevant for contributions of equity interests, the creation of holding companies and other business restructuring transactions. At LEIALTA, we explain the judgment and its implications in more detail below.
What has the Supreme Court said about the FEAC regime and the Spanish Tax Agency?
The key principle underlying the judgment is proportionality.
Until now, one of the disputed issues was what should happen when the Spanish Tax Agency concluded that a restructuring was not supported by valid economic reasons and identified an abusive tax purpose.
The Supreme Court has now clarified that this circumstance alone does not allow the Tax Agency to remove all the effects of the FEAC regime.
Instead, the Spanish Tax Agency must determine which tax advantage was being pursued abusively and direct the reassessment towards eliminating the effects of that specific advantage.
The current Article 89.2 of the Spanish Corporate Income Tax Law follows precisely this approach. It allows the FEAC regime to be disapplied in full or in part, while limiting the reassessment to the corresponding tax advantage.
The Court also makes a particularly relevant clarification: the deferral of capital gains is inherent to the tax neutrality regime itself. In other words, deferring taxation on those gains cannot, by itself, be regarded as an abusive tax advantage.
Therefore, the Spanish Tax Agency may only remove that deferral and require taxation of the latent capital gains if it provides specific and sufficiently robust reasoning showing that obtaining the deferral was the principal objective of the transaction.
If you would like to understand how this regime works and which transactions may fall within its scope, you can read our blog article on the FEAC regime and tax neutrality in business restructuring transactions.
The case: a holding company created through contributions of equity interests
This judgment arose from the incorporation of a holding company through contributions of shares and equity interests.
The transaction was carried out under the FEAC regime. However, following a tax audit, the Spanish Tax Inspectorate concluded that there were no valid economic reasons and identified several tax-related objectives involving dividends, Wealth Tax and Inheritance and Gift Tax.
On that basis, the Tax Agency also removed the deferral of the capital gains arising from the contribution and subjected those gains to Spanish Personal Income Tax.
It is precisely this final step that the Supreme Court questions.
The loss of the deferral had been applied automatically, even though the Tax Agency had not identified the deferral itself as the abusive tax advantage pursued through the transaction.
So, the judgment therefore annuls the reassessment on this point and establishes that any disapplication of the FEAC regime must be connected to the abusive advantage that has been identified and demonstrated.
What does this judgment mean for a company planning a restructuring?
The judgment provides greater clarity regarding the limits of a tax reassessment. However, it does not mean that every restructuring or holding company structure is protected from scrutiny by the Spanish Tax Agency.
Valid economic reasons remain essential.
In fact, in the case considered by the Court, it had already been established that there were no valid economic reasons, and the Supreme Court did not reopen that issue. The dispute focused instead on how the transaction should have been reassessed.
For companies considering a restructuring, the judgment provides several practical lessons:
- The transaction should be supported by genuine and specific business reasons.
- Those reasons should be documented before the restructuring is carried out.
- The resulting structure should be consistent with the objectives used to justify the transaction.
- If the Spanish Tax Agency reviews the transaction, it must identify the tax advantage it considers abusive and justify the scope of any reassessment.
- The existence of a tax advantage does not, by itself, make the transaction abusive. The Supreme Court confirms that a tax advantage may be compatible with the FEAC regime provided it is not the principal objective of the transaction.
Tax and corporate advice for business restructuring transactions
A business restructuring usually has consequences that extend beyond taxation. The choice between a contribution of equity interests, a holding structure, a spin-off or another alternative should first respond to the company’s actual needs.
For this reason, before implementing the transaction, it is advisable to analyse its corporate, tax and business implications together, as well as the documentation needed to explain why the chosen structure is appropriate.
At LEIALTA, we support companies throughout these transactions from a coordinated corporate, tax and business perspective, analysing the structure before implementation and anticipating its potential implications.
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