Fix create MR from issue using a tag as ref

Creating a MR from an issue using a tag as ref correctly creates the
source branch starting from the tag.

app/services/merge_requests/create_from_issue_service.rb

@@ -52,8 +52,26 @@ module MergeRequests
     end
     def ref
-      return @ref if target_project.repository.branch_exists?(@ref)
+      if valid_ref?
+        @ref
+      else
+        default_branch
+      end
+    end
+
+    def valid_ref?
+      ref_is_branch? || ref_is_tag?
+    end
+
+    def ref_is_branch?
+      target_project.repository.branch_exists?(@ref)
+    end
+    def ref_is_tag?
+      target_project.repository.tag_exists?(@ref)
+    end
+
+    def default_branch
       target_project.default_branch || 'master'
     end
@@ -67,10 +85,18 @@ module MergeRequests
         source_project_id: target_project.id,
         source_branch: branch_name,
         target_project_id: target_project.id,
-        target_branch: ref
+        target_branch: target_branch
       }
     end
+    def target_branch
+      if ref_is_branch?
+        @ref
+      else
+        default_branch
+      end
+    end
+
     def success(merge_request)
       super().merge(merge_request: merge_request)
     end

changelogs/unreleased/50847-automatically-created-mr-uses-wrong-source-branch-when-branching-fr.yml

+---
+title: Fix create MR from issue using a tag as ref
+merge_request: 32392
+author: Jacopo Beschi @jacopo-beschi
+type: fixed

spec/services/merge_requests/create_from_issue_service_spec.rb

@@ -112,6 +112,22 @@ describe MergeRequests::CreateFromIssueService do
           expect(subject[:merge_request].target_branch).to eq('feature')
         end
+        context 'when the ref is a tag' do
+          subject { described_class.new(project, user, ref: 'v1.0.0', **service_params).execute }
+
+          it 'sets the merge request source branch to the new issue branch' do
+            expect(subject[:merge_request].source_branch).to eq(issue.to_branch_name)
+          end
+
+          it 'creates a merge request' do
+            expect { subject }.to change(target_project.merge_requests, :count).by(1)
+          end
+
+          it 'sets the merge request target branch to the project default branch' do
+            expect(subject[:merge_request].target_branch).to eq(target_project.default_branch)
+          end
+        end
+
         context 'when ref branch does not exist' do
           subject { described_class.new(project, user, ref: 'no-such-branch', **service_params).execute }