Ferrovial has explained to the CNMV that the four reasons that have led its board of directors to decide to transfer Spain to Netherlands of the multinational’s headquarters are of a financial and strategic nature, to achieve easier access to financing and capital and a greater “notoriety” of its brand both in Europe and in the rest of the world. The Government insists on questioning the arguments put forward by Ferrovial. the vice president Nadia Calvino He has said that the Government and the CNMV will analyze these arguments to find out if they have “substance”. La Moncloa suggests that the real reasons behind the decision of the president of Ferrovial, raphael del pinoThey are fiscal in nature. Beyond the political noise and the crossing of outbursts, there are powerful reasons in the Government to try to demonstrate that the arguments provided by Del Pino could not be true.
A special tax regime for mergers
The transfer of Ferrovial’s headquarters to the Netherlands has been proposed as a merger in which Ferrovial Internacional SE (FISE), based in Amsterdam, will absorb the until now main company, Ferrovial SA, based in Madrid, and will become in the group matrix. Translated: the daughter absorbs the mother and takes over. In one way or another, any merger operation entails a flow of contributions, acquisitions and exchange of securities that would imply a very high tax bill, were it not for the existence of the so-called special tax regime for mergers, which allows considerable savings for this type of operation. In the document ‘Common cross-border merger project’ sent by Ferrovial to the CNMV on Thursday, March 2, the company confirms its intention to benefit from this special tax regime: “The merger will be carried out under the tax neutrality regime provided for in Chapter VII of Title VII of the tax law on companies”. All large restructuring operations, such as the merger of Caixabank and Bankia, for example, seek to benefit from this advantageous tax regime that allows deferring the taxation of capital gains at the time they materialize.
One condition: that it is not to pay less
When a merger is carried out, the value of the assets of the acquired company must be updated and this brings out some capital gains (profits) for which the Treasury would have to be taxed. This is where the so-called “Regime [fiscal] of mergers, divisions, contributions of assets, exchange of securities and change of registered office of a European Company or a European Cooperative Society from one Member State to another of the European Union”. According to a summary of tax experts consulted, in practice, this regime means that you do not have to pay taxes on those latent capital gains at the time of the merger (you would only have to pay taxes on them if you sell an asset and obtain a capital gain).The only condition imposed by law to be able to enjoy this relief is that the merger is actually carried out “for valid economic reasons” and not “for the mere purpose of obtaining a tax advantage”.
The real crux of the matter
This is where the crux of the matter lies. If Ferrovial argues irreproachably that there are “valid economic reasons” that justify moving the headquarters from Madrid to Amsterdam will bring more business and benefits to the company, there will be no problem applying the advantages of the special merger regime. If, on the contrary, the Government or the CNMV dismantled the “substance” of the arguments -in Calviño’s expression- and it was revealed that the reason for moving the headquarters to Amsterdam is only to enjoy the best Dutch tax regime, they would no longer it would be possible to apply the special regime. In this case, Ferrovial could go to the Netherlands, but only after paying hefty taxes to the Spanish Treasury. The debate on what are the reasons that lead Ferrovial to leave Spain, thus, is not only political, as it might seem from the fiery bickering emanating from the Government and the Popular Party. There are substantial underlying economic reasons. As published by the newspaper Cinco Días, Ferrovial executives met this Thursday with civil servants from the Central Delegation of Large Taxpayers of the Tax Agency to discuss Ferrovial’s corporate operation.
Del Pino’s four reasons
In the document ‘Common cross-border merger project’, of 92 pages, sent to the CNMV, Ferrovial breaks down the arguments that lead it to transfer its headquarters to the Netherlands. Tax savings are not mentioned among them. Ferrovial acknowledges that it will obtain tax savings but does not cite it as a motive for the transfer of the headquarters. Instead, it does note that the Netherlands, with a AAA credit rating, implies “a favorable business and investor environment, a reliable legal system and a strong corporate governance framework.” In addition, it is argued that this triple A rating “should mean that, in the future, the financing costs of the company’s debt issues are reduced and, in the long run, also improvements in the cost of capital”. Thirdly, Ferrovial believes that its presence in the Netherlands “will increase the awareness of its brand both in Europe and in the rest of the world.” Finally, it is considered that the Netherlands constitutes “an optimal platform for listing in the United States”, as well as in Spain and the Netherlands; and “listing in the United States is a strategic objective for the Ferrovial Group”, as it plans to concentrate more business there (92% of the investments committed by the group for the period 2023-2027 correspond to the US.
The suspicion of the Government: a fiscal motive
The Government doubts that there is “substance” in the arguments provided by Ferrovial. The CNMV, for its part, maintains that it is not necessary to go to Amsterdam to list in the US, since it is possible to do so from Madrid. Moncloa points to a fiscal motive for the transfer. Dividends distributed by subsidiaries abroad to their parent company are 100% exempt in the Netherlands; in Spain the exemption only reaches 95% of repatriated dividends. This, according to an analysis by Banc Sabadell, could report savings of 40 million euros to a group that paid 30 million in taxes on profit in 2022, of which only 5 million were in Spain, according to the Integrated Annual Report 2022. Such a low tax bill is largely explained by the compensation of losses from past years. In addition to the foreseeable tax savings due to the total exemption of dividends, the Netherlands allows each multinational to negotiate with the Dutch tax administration a special tax ruling (‘tax ruling). Another way of tax savings can come from accumulated book losses. According to the group’s integrated annual report, the Ferrovial group accumulates tax credits for negative tax bases from past years for 712 million, of which 160 correspond to Spain. Dutch legislation allows unlimited compensation for losses accumulated in previous years with the consequent tax reduction; In Spain there are limits to losses.
The experts consulted agree on the same point: although there is indeed a reason to pay less taxes in Ferrovial’s decision to move its headquarters to the Netherlands, it is very difficult to refute that to the same or greater extent it will be able to obtain the economic advantages that it claims for your business. This being the case, it would be very difficult for the AEAT to deny the tax neutrality regime to the Ferrovial merger.