Business purpose in leveraged buyouts

1. Introduction

In view of the reasoning supporting both the Spanish Directorate-General for Taxation’s Decision V0775/2015 of 10 March 2015, in a binding response to a taxpayer’s query, and the Judgment of the Spanish Supreme Court of 26 February 2015 (Rec. 4072/2013) (Glaxo judgment), it appears that the analysis of ‘business purpose’ that should govern and underpin restructuring operations carried out by way of leveraged buyouts must be performed at two levels and at both such levels the aforementioned economic substance test must be passed.Thus, to begin with, at what we could call ‘level I’, the existence of business purpose is determined by analysing whether the restructuring operation meets the objectives and requirements set out by the law for each case. After this first level, at what we could call ‘level II’, the specific transactions carried out for the restructuring are analysed to determine if they either conform to the objectives of such restructuring – thereby passing the economic substance test – or, otherwise, are unnecessary or superfluous to achieve said objectives…