Newsletter Fiscal December 23

Tax Newsletter

December 23

Daniel Tarroja, Tax Partner
Newsletter Fiscal December 23

Personal Income Tax (IRPF):

  • National Court ruling of 3 October 2023. Personal Income Tax. Determination of tax domicile. “Remittance basis taxation”.
    • The disputed issue centres on clarifying the appellant's tax domicile. While the appellant states that he is based in London, the Spanish tax authority maintains that his tax domicile is in Spain.
    • The National Court upholds the appellant's claims as it found that an overall assessment of the evidence would indicate that the tax authority has not proven that the taxpayer habitually resides in Spain in the terms required by article 9.1 of the LIRPF: that is, his residence in Spain for more than 183 days has not been proven. What the tax authority has proven is that the appellant has economic interests in Spain and family relations with residents in Spain, but this does not mean that the appellant himself habitually resides in Spain. On the contrary, the appellant has successfully proven that he has a home that he can use in London, and that a move has been made to that city for residence on a regular basis.

      In view of the foregoing, the Court determines that the tax regime applicable in the United Kingdom, that is, "Remittance basis taxation", is not relevant for determining the tax domicile, nor does it necessarily mean that the appellant is not ordinarily resident in that country. Differences in the United Kingdom’s tax regime are determined depending on whether the taxpayer's occupation is carried on wholly or partly in the UK or wholly outside the UK. In the appellant's case, the professional activity took place both inside and outside the United Kingdom (as races in which he took part were held both inside and outside the country). Therefore, tax status was not dependent on habitual residence in the United Kingdom, under the same conditions as those applicable in Spain. From this point of view, since it has been proven that he does not have a tax domicile in Spain, it is obvious that the assessment made by the tax authority is unlawful because it is based on the idea that he is a tax resident in Spain, and this has not been proven.

  • Judgment of the High Court of Justice of Catalonia of 27 July 2023. Personal Income Tax. Deductibility of necktie expenses related to the lawyer's professional activity.
    • The question at issue in these proceedings is to determine whether or not the expenses for the purchase of neckties for the performance of the legal profession are deductible for personal income tax purposes.
    • The Economic and Administrative Court of Catalonia held that in the present case the expense related to a suit made to measure for the taxpayer should be allowed, since he provided an invoice from the tailor's shop that made the suit. However, it does not allow the expenses for the two ties purchased in another store because he has only provided a simplified invoice and there is no record of the charge on the obligor's card. The High Court of Catalonia holds that, although it is true that the simplified invoice is not a complete invoice, the simplified invoice could be issued in the present case. Hence, it must eligible for consideration as a deductible expense, as a general rule. Further, the charge to the obligor's account has been proven, showing that it has been paid by the obligor himself, and a copy of the charge to the card in the name of the plaintiff is also provided. Thus, since the arguments supporting the refusal fail and the deductibility of the suit has been allowed by the High Court of Catalonia, there is no doubt that the expenses for ties must be allowed since they constitute an almost indispensable component of the formality expected in the professional activity of lawyers.

Corporate tax (IS):

  • Economic and Administrative Court (TEAC) judgement number 00/09295/2021 of 30 October 2023. Corporation Tax. “Patent box” reduction..
    • The issue under dispute focuses on whether it is possible to apply the patent box regime in the transfer of intangible assets between companies belonging to the same tax consolidation group. It should be recalled that the patent box regime is provided for in Article 23 of the Corporation Tax Act (LIS) as a means to encourage the innovative activity of companies. It provides a reduction in the corporation tax base of up to 60% for income derived from the assignment of the right to use or exploit certain intangible assets, even when it is made in to related companies or companies in the same tax group.
    • The TEAC rejects the claim, stating as a criterion that it is not possible to apply the tax benefit of the reduction for the assignment of intangibles between companies belonging to the same tax consolidation group for income arising from payments that end up being made by the group entity that created the intangible asset whose assignment is remunerated to another group entity, which became the owner of the intangible asset following a restructuring operation. The above operation is clearly contrary to the objective pursued by the tax benefit, since its application cannot be allowed in purely "circular" schemes in which the entity that created the intangible asset being transferred ends up remunerating the assignment.

Value Added Tax (VAT):

  • Binding Query V2927-23 of 31 October 2023.. VAT. Tax rate. Discotheque. Disc jockeys. Sale of alcoholic beverages.
    • The consulting company has a hotel business that includes a terrace where they serve dinner and alcoholic beverages and another indoor area where they serve only alcoholic beverages and where disc jockeys perform on a daily basis. Similarly, the company indicates that it charges an entrance fee for access to the indoor disco area. The taxpayer has been applying the VAT rate of 10% to the services provided on the terrace and the general tax rate of 21% to sales in the discotheque. The question raised concerns the tax rate applicable to the operations described above.
    • The Directorate-General of Taxation (DGT) responds to the query raised and finds that hospitality services provided in a discotheque, music bar, café theatre, café concert and similar establishments are taxed, in any case, at the reduced tax rate of 10% regardless of whether the hospitality service is performed in conjunction with a provision of recreational services, such as shows, musical performances, discotheque, nightclubs, dance halls and karaoke. In addition, the service of entry to discotheques and similar establishments is independent from the hotel and catering service. Accordingly, this service of entry must be taxed at the general VAT rate of 21%. However, when such services are offered on a continuous basis or when live cultural shows are held, they will be taxed at the reduced rate of 10% of the aforementioned tax. The performance of a disc jockey in a discotheque is considered a live cultural show, so that the service of entry to nightclubs, dance halls and discotheques when such a performance is offered will be taxed at the reduced VAT rate of 10%. Lastly, in the event that, once VAT has been charged, it is confirmed that the rate charged by the business is higher than the correct rate, the excessive charge must be corrected, as established in Article 89 of the VAT Law, and a corrective invoice must be issued.
  • Binding Query V2407-23 of 7 September 2023.. VAT. Taxation of restaurant services. Cryptocurrencies.
    • The consulting entity is a hospitality association that includes several restaurants and is considering the acceptance of cryptocurrencies as a means of payment. The queries to the DGT are as follows: (1) The extent to which the restaurant's services are subject to VAT in payments via cryptocurrencies and, 2) The obligation to declare such income for VAT purposes.
    • The DGT responds to the question raised by establishing that bitcoins, cryptocurrencies and other digital currencies are currencies that constitute means of payment. Therefore, the querier must charge VAT for the hospitality services provided and must declare them in its VAT self-assessment. For its part, the delivery of cryptocurrencies by restaurant customers as a means of payment is not subject to tax in accordance with the provisions of Article 7.12 of the VAT Law, which states that the delivery of money as consideration is not subject to this tax.

Other relevant rulings:

  • Judgment of the High Court of Justice of the European Union of 14 December 2023.. "Tax Ruling Amazon.".
    • The CJEU rules in Case C-457/21 P, which concerns an appeal brought by the European Commission seeking the annulment of the judgment of the General Court of 12 May 2021. The issue at in question in the present proceedings is whether the tax ruling granted to Amazon by Luxembourg constitutes State aid that is incompatible with the internal market.
    • The CJEU dismissed the appeal, finding that the General Court was wrong to recognise the general applicability of the arm's length principle, which aims to assess whether intra-group transactions are carried out in compliance with market conditions in the context of the application of the Union's State aid rules. In this regard, since this principle does not have an autonomous existence in European Union law, the Commission can only invoke it if it forms part of the relevant national tax law, in this case, Luxembourg tax law. Moreover, contrary to what the General Court stated, the Organization for Economic Cooperation and Development (OECD) Guidelines relating to this type of transaction could only have been applicable in the specific case if Luxembourg tax law had expressly mentioned the Guidelines. The Court of Justice concludes in this regard that the Commission made an erroneous determination of the "reference system", the first stage of the analysis to be able to classify a national measure as State aid. However, despite these errors of law and the General Court's erroneous conclusion that the reference system determined by Luxembourg tax law enshrined the arm's length principle at the time when the tax ruling in question was adopted, the Court of Justice upholds the judgment under appeal: the Commission's decision should in any event be overturned on account of that erroneous determination of the reference system, rather than for the reasons given by the General Court. In fact, the General Court had overturned the Commission's decision due to errors made in the application of that reference system, on the incorrect assumption that it was in conformity with the Treaty.