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Newsletter Tax January 26

Tax Newsletter

January 26

Daniel Tarroja, Tax Partner
28/01/2026
Newsletter Tax January 26

Case law:

Value Added Tax (VAT)

  • Supreme Court ruling of 27 November 2025. VAT. Reduced rate.
    • The Supreme Court rules on appeal number 6044/2023, lodged against the judgment handed down by the National High Court which dismissed the appeal filed against the Central Economic and Administrative Court’s decision in relation to the settlement agreements for VAT for the 2011 to 2015 financial years as well as the penalty agreement related to the same item. The Supreme Court has to decide on two issues, the first of which is to determine whether the reduced rate of 10% provided for in section 91(1)(2)(10) of the VAT Act is applicable in cases where the renovation or repair services for private dwellings referred to in that provision are contracted and paid for directly by an insurance undertaking, even though they benefit the individual who is the owner of the private dwelling in their capacity as the insured. Secondly, it has to specify whether the answer to the previous question changes when the services provided include, besides the renovation or repair of the dwelling, other additional services for the insurance undertaking.
    • The Supreme Court allows the appeal and, setting out the following interpretative criteria, firstly finds that the reduced tax rate of 10% provided for in the VAT Act is not applicable in cases where the renovation or repair services for private dwellings referred to in the Act are contracted and paid for directly by an insurance undertaking, even if they benefit the individual who is the owner of the private dwelling in their capacity as the insured. Addressing the second question raised, and consistent with the above, it holds that this does not change when the services provided include, besides the renovation or repair of the dwelling, other additional services for the insurance undertaking. Furthermore, it considers that they confirm the conclusion reached in relation to the first question.
  • Supreme Court ruling of 18 December 2025. VAT. Exemptions.
    • The Supreme Court rules on appeal number 4657/2023, lodged against the judgment handed down by the High Court of Justice of Galicia which partially upheld the administrative appeal filed against the decision of the Regional Economic Administrative Court of Galicia in relation to the settlement agreements concerning VAT for the 2014 and 2015 financial years and the penalty agreements arising from them. The question raised and on which the Supreme Court has to rule is whether the exemption set out in section 20(1)(19) of the VAT Act is applicable to services provided by technology companies to an undertaking engaged in online gambling, when those services are necessary for the performance of that activity and the remuneration of those technology companies is determined on the basis of the results achieved.
    • The Supreme Court dismisses the appeal and, establishing the following interpretative criteria, rules that in a case such as the one under consideration, the exemption set out in section 20(1)(19) of the VAT Act does not apply to services provided by technology companies to an undertaking engaged in online gambling, even if the services are necessary for that activity and part of the remuneration of those technology companies is determined on the basis of the results achieved.

Non-Resident Income Tax (IRNR)

  • Supreme Court ruling of 11 December 2025.Non-Resident Income Tax (IRNR). Deductions by insurance undertakings.
    • The Supreme Court rules on appeal number 5203/2023, filed by the State Attorney against the ruling handed down by the National Court which upheld the administrative appeal against the decision of the Central Economic Administrative Court confirming rejection of the request for a refund of undue payments made on account of IRNR withholdings for income gained by non-residents without a permanent establishment on dividends obtained from their investments in shares in Spanish companies. The question raised and on which the Supreme Court has to rule is whether in the case of insurance undertakings resident in another Member State of the European Union which only engage in financial investments in Spain from which they earn capital gains without a permanent establishment, it can be considered, for the purposes of the deductibility of expenses provided for in section 24(6) of the recast text of the Non-Resident Income Tax Act, by reference to the Corporation Tax Act, that those relating to technical provisions (comparable to those provided for in article 38 of the Private Insurance Management and Supervision Regulations and exclusive to insurance operations) may be deducted because they are directly related to the income obtained in Spain and have a direct and inseparable economic link with the operations carried out in Spain.
    • The Supreme Court dismisses the appeal and, establishing the following interpretative criteria, rules that in the case of insurance undertakings resident in another Member State of the European Union which only engage in financial investments in Spain from which they earn capital gains without a permanent establishment, it may be considered, for the purposes of the deductibility of expenses provided for in section 24(6) of the recast text of the Non-Resident Income Tax Act, that those relating to technical provisions (comparable to those provided for in article 38 of the Private Insurance Management and Supervision Regulations and exclusive to insurance operations) are tax deductible in order to avoid discrimination contrary to the free movement of capital under Article 63(1) TFEU, insofar as such expenses should be construed as being directly related to the income obtained in Spain and having a direct and inseparable economic link with the operations carried out in Spain.

Administrative legal commentary:

Value Added Tax (VAT)

  • Binding Consultation V1032-25 of 23 June 2025. VAT. Reverse charge mechanism
    • The petitioner is a temporary group of undertakings (UTE) that is going to be hired by another UTE concessionaire for the construction and operation of several sections of road for drafting the design and the actual construction of these sections and for their temporary maintenance until the concessionaire contracts another commercial undertaking to supply the maintenance and repair service for the sections on a permanent basis. The question raised concerns whether the reverse charge mechanism provided for in article 84(1)(2)(f) of the VAT Act should be applied.
    • The DGT addresses the question raised and, firstly, notes that sections 4 and 5 of the VAT Act are generally applicable and therefore also to UTEs. Hence, the supplies of goods and services it delivers in the performance of its business or professional activity in the territory of application of the tax are subject to VAT. Under section 84(1)(2) of the VAT Act, the reverse charge mechanism will apply when the following requirements are met: (a) the recipient of the transactions subject to tax must act in the capacity of an entrepreneur or professional practitioner; (b) the transactions carried out must be for the purpose of land development or the construction or renovation of buildings. Likewise, section 6(2)(f) of the VAT Act provides that, in particular, roads and motorways shall be considered buildings. Having established the above, the DGT refers to consultation V2583-12 which addresses the reverse charge mechanism under section 84(1)(2) of the VAT Act and concludes that, insofar as the petitioner entity is going to provide different supplies within the same contract which will include drafting the design, the actual construction of the road sections and their temporary maintenance, it is advisable to analyse the regime of what are known as mixed contracts derived from the CJEU’s rulings including in its judgments of 25/02/1999, C-349/96, and 29/03/2007, C-111/05, in which it raised the question of what the appropriate criteria are for deciding, for VAT purposes, whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately. After analysing the aforementioned case law, it concludes that the nature of the mixed contract or subcontract from which the transaction derives does not detract from its connection with the performance of real estate work involving the urban development of land or the construction or renovation of buildings, which leads to the application of the reverse charge mechanism. Thus, in accordance with the above, the reverse charge mechanism in section 84(1)(2)(f) of the Value Added Tax Act will apply to all the supplies to be made by the petitioner entity under the mixed contract in question since the main supply is the performance of work for the construction of a building carried out for the benefit of another entrepreneur or professional practitioner.

Personal Income Tax (PIT)

  • Binding Consultation V1076-25 of 25 June 2025. Personal Income Tax (PIT). Exemption under section 7(p).
    • The petitioner is a Spanish company that has been applying the exemption established in section 7(p) of the Personal Income Tax Act, and its operations and employee travel involve a wide variety of situations. The question raised seeks to clarify whether, regardless of the time of departure from Spain to a foreign country and the time of arrival in Spain, the exemption covers the day of departure to a foreign country and the day of arrival in Spain.
    • The DGT responds to the question raised and, based on binding consultation V0491-24 of 4 April 2024, which in turn refers to Supreme Court Ruling 274/2021 of 25 February, decides that it is consistent and reasonable to interpret the term “work actually performed abroad” as including the days of arrival and departure. Failure to take these days into account would run counter to the principles governing the regulation of this exemption. Thus, following the criterion laid down by the Supreme Court, it is established that the expression “income from work actually performed abroad” in section 7(p) of the Personal Income Tax Act should be construed as including income received by the worker on the days of travel to the destination country or return to Spain.