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Interpretation of sound economic reason in Spain and mergers directive

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The anti-abuse clause of the mergers Directive (“sound economic reason”) shall only be applicable to tax included under the Directive, mainly Corporate Tax


In the judgement dated 20-05-2010 (Modehuis Zwijnenburg case, C-352/08), the EU Court declared that the absence of a sound economic reason in the context of Directive 90/434 concerning mergers is only applicable in relation to Corporate Tax and not to other taxes which might have been sought to be avoided by means of a corporate restructuring process.

The judgement examined the case of a corporate restructuring transaction within a family which, furthermore, appeared to seek to avoid the property transfer tax in Holland. Dutch authorities attempted to take away all taxation advantages of the restructuring transaction from this company given the suspicion of fraud in relation to property transfer tax.

The EU Court stated that the requirement for a sound economic reason can only be applied in relation to Corporate Tax, and that, therefore, the transaction cannot be rejected globally. In the event that there is suspicion on fraud relating to other taxes in the framework of a corporate restructuring operation, these suspicions must be examined thoroughly, and the relevant responsibilities must be enforced (such as payment of the relevant property transfer tax), but this cannot deprive the company of the taxation advantages applicable to restructuring in the framework of Corporate Tax. As this is a national restructuring transaction, the EU Court did not rule on the alleged fraud on the property transfer tax and deferred the judgement to the Dutch Court, but only in relation to this specific tax.

This ruling has many applications in Spain, as there is a Property Transfer Tax (Impuesto sobre Transmisiones Patrimoniales or ITP) which, as in Holland, levies certain corporate restructuring transactions (mainly property transfers.)

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