Two recent resolutions of the Central Economic-Administrative Court (TEAC), issued on May 8, 2026 (00-10041-2022-00), in proceedings defended by the Tax Litigation Department of Devesa, mark a turning point in the interpretation of valid economic reasons in restructuring operations covered by the special tax regime for mergers, divisions, contributions of assets and exchange of securities (FEAC).
José María García Guirao, a partner at Devesa, stated that “historically there has been a significant difficulty in getting the Administration – and later the TEAC itself – to accept the existence of valid economic reasons in structures where, after an exchange or contribution operation, dividend distributions occurred.”
“Administrative practice had evolved into a relatively predictable pattern: when a subsequent dividend distribution was identified after a restructuring operation, the Tax Inspectorate tended to interpret the essential objective of the operation as channeling profits through a holding company and benefiting from double taxation elimination regimes, considering the business justification secondary or nonexistent. And, although some rulings by the Directorate General of Taxes (DGT) already acknowledged this, the Central Economic-Administrative Court (TEAC) had shown a particularly strict stance when validating these operations,” García Guirao added.
The resolutions now known introduce highlighted elements:
The first and most important point is that the TEAC expressly recognizes that valid economic reasons can exist even in transactions followed by dividend distributions. “It may seem like an obvious statement, but it isn’t. It breaks, at least partially, with an interpretive line that had generated significant legal uncertainty. The existence of subsequent dividends no longer automatically becomes practically conclusive evidence of abuse,” explained José María García Guirao.
The second noteworthy aspect is the methodology the Court uses to reach this conclusion. The TEAC states that the analysis cannot be conducted in isolation nor focus exclusively on a specific point in time. The facts and circumstances prior to and concurrent with the operation must be examined, as well as subsequent events. This element is of great importance because it allows for an assessment of whether the corporate reorganization actually produced subsequent economic and corporate effects consistent with the stated purpose.
García Guirao points out that “the approach is particularly interesting because, on many occasions, inspection procedures tend to retrospectively reconstruct operations by selecting only those elements that allow them to support a predetermined conclusion. In contrast, the Court seems to be calling for a comprehensive and contextualized examination.”
In the case under analysis, one of the factors particularly valued was the use of the dividends received. The ruling notes that the majority of the dividend was subsequently reinvested in the acquisition of shares in another holding company, which, in turn, owned two operating companies, thus consolidating the established corporate structure. “It is especially interesting that the Court does not require absolute or total reinvestment. It does not appear to impose a mathematical rule according to which one hundred percent of the resources obtained must be allocated to new investments to legitimize the transaction,” stated the Devesa partner.
The consequence is relevant: the partial reinvestment of funds in affected elements can constitute a sufficient indicative element when it is inserted within a coherent overall business project.
There is also an additional element that will likely have enormous future implications and which, in José María García Guirao’s opinion, may be one of the most innovative aspects of the ruling: “The Central Economic-Administrative Court (TEAC) gives relevance (quoting what was stated in our brief) to the fact that there were different legal alternatives that allowed similar objectives to be achieved without generating taxation. The idea is legally sound. If a taxpayer had exclusively pursued an illegitimate tax advantage, it would be reasonable to ask why they opted for a more complex or questionable structure when other equally effective and tax-neutral avenues existed. This reasoning can be applied to numerous future scenarios. Let’s consider, for example, the increasingly common mechanisms used in corporate and asset reorganization processes, such as certain intercompany donations between entities with identical shareholding structures. Sometimes these alternatives allow for equivalent economic results to be achieved without generating immediate taxation.”
If the existence of tax-neutral options begins to become a relevant interpretive element to determine the true purpose of a transaction, we could be facing a substantial change in the way of analyzing the anti-abuse clause of article 89.2 of the Corporate Income Tax Law.
Unlike some rulings by High Courts of Justice, the positive aspect of this TEAC Resolution is that it establishes a binding precedent for the Tax Administration going forward. This opens up a particularly valuable avenue of argument for those who maintain that complex business transactions cannot be reduced to simplistic analyses or automatic presumptions based solely on the resulting tax effect.
