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Newsletter Fiscal February 22

Tax Newletter

February 22

Daniel Tarroja, Tax Partner
28/02/2022
Newsletter Fiscal February 22

Value-Added Tax (VAT)

  • Ruling of the Court of Justice of the European Union of 3 February 2022. Case C-515/20. VAT. Tax rates. Reduced rate for supplies of firewood.
    • As regards the first question, Article 122 of the VAT Directive must be interpreted as meaning that the concept of wood for use as firewood, within the meaning of that article, designates any wood which, on the basis of its objective properties, is intended exclusively for burning.
    • As regards the second question, Article 122 of the Directive must be interpreted as meaning that a Member State which, in applying that article, establishes a reduced rate of value added tax for supplies of wood for use as firewood, may limit its scope as regards some categories of supplies of wood for use as firewood with reference to the Combined Nomenclature, subject to compliance with the principle of fiscal neutrality.
    • Finally, as regards the third question, the principle of fiscal neutrality must be interpreted as not precluding national law from excluding from the benefit of the reduced rate of value added tax the supply of wood chips, even though it grants that benefit to supplies of other types of wood for use as firewood, subject to wood chips not being interchangeable, from the point of view of the average consumer, with other types of wood for use as firewood, which it is for the referring court to ascertain.
  • Ruling of the Court of Justice of the European Union of 9 December 2021. Case C-154/20. VAT. Right of deduction. Material requirements. Supplier’s status as taxable person. Burden of proof.
    • The Czech Tax Authorities denied a company the right to deduct input VAT for advertising services provided for golf tournaments that took place during the years 2010 and 2011. Without questioning the actual provision of the services, the Czech tax authorities noted that the director of the company that had provided the services had stated that he was unaware of the existence of the services and that the appellant company could not prove that the company was the actual provider of such services. Taking the view, on the one hand, that the identity of the supplier or suppliers and their status as VAT taxable persons had not been established and, on the other hand, that the scope of the services was partially disputed, the Czech Tax Authorities issued an assessment for the amount of VAT due.
    • The referring court asks whether the VAT Directive must be interpreted as meaning that the right to deduct input VAT must be refused, without the tax authorities having to prove that the taxable person committed VAT fraud or that he or she knew, or ought to have known, that the transaction relied on to establish the right of deduction was connected with such fraud, where the true supplier of the goods or services concerned has not been identified and that taxable person fails to adduce proof that that supplier had the status of taxable person.
    • The CJEU finds that the VAT Directive must be interpreted as meaning that the right to deduct input VAT must be refused, without the Tax Authorities having to prove that the taxable person committed VAT fraud or that he or she knew, or ought to have known, that the transaction relied on to establish the right of deduction was connected with such fraud, where, the true supplier of the goods or services concerned not having been identified, that taxable person fails to adduce proof that that supplier had the status of taxable person, provided that, taking into account the factual circumstances and the evidence produced by that taxable person, the information needed to verify that the true supplier had that status is lacking.

Personal Income Tax (IRPF)

  • Ruling of the Madrid Supreme Court of 17 November 2021. Personal income tax. Exemption for work carried out abroad. Evidence. Contracts between an employer and its client.
    • An employee of a Spanish company, a tax resident in Spain, did some work in Brazil (working on the projects of a subsidiary in that country) and in Russia (working on a project for a client of the company in that country). Both the Tax Administration and the TEAR (Regional Economic Administrative Court) of Madrid have denied the application of the exemption for work performed abroad because they do not believe that the taxpayer has proven that the work was performed for the benefit of non-resident entities. Specifically, they assert that the certificates provided by the taxpayer do not indicate the specific functions performed. Moreover, they noted that the worker had not provided the contracts between his employer and the clients.
    • The Madrid Supreme Court clarifies, first of all, that it is a question of evidence. It is important to remember that days of travel are not in question and that the Administration does not believe there was a connection between the companies involved. However, the Court points out that the employee cannot be required to provide the contracts between the two companies because it exceeds his evidentiary capabilities, since they are documents that are not available to him and that the companies are not obligated to provide to their displaced employees.

Tax on the Increase in the Value of Urban Land (IIVTNU)

  • Supreme Court ruling of 3 February 2022. Cassation Appeal 27/2021. IIVTNU (Tax on the Increase in Value of Urban Land).Pecuniary responsibility of the State Legislator.
    • The City Council of Mataró issued a tax assessment for Tax on the Increase in Value of Urban Land (IIVTNU) to a commercial company for the sale of several properties. As a consequence of Constitutional Court Ruling 59/17, of 11 May (on the non-existence of capital gains), on 14 June 2018, a claim was filed against the State for pecuniary liability. One day before the hearing, the plaintiff’s attorney filed a brief bringing the Constitutional Court Ruling of 26 October 2021 to the court’s attention. That ruling declared that articles 107.1(2), 107.2.a) and 107.4 of the Consolidated Text of the Law regulating Local Tax Authorities are unconstitutional and null and void on the grounds that the regulation governing the calculation of the taxable base for capital gains violates the principle of economic capacity which, in the court’s opinion, necessitates the striking down of the appealed ruling and the recognition of the right to compensation.
    • The Supreme Court believes that what this case boils down to is a question of evidence. The plaintiff has not proven practically anything of interest here. On the other hand, it is important to note the limited effects of the Constitutional Court Ruling of 26 October 2021, according to which cases that had been decided prior to the date of the ruling (either by the courts with the force of res judicata or in a binding administrative decision) -as is the case- cannot be reviewed on the basis of this decision. This also applies to other situations which are considered settled (this includes self-assessments not appealed prior to the aforementioned date, among others). This does not affect the issue in question in the present case in any way.
  • Binding Consultation V3074-21, of 7 December 2021. IIVTNU (Tax on the Increase in Value of Urban Land).First consultation after the publication of Constitutional Court Ruling 182/2021. Unconstitutionality of municipal capital gains tax.
    • This consultation refers to the purchase and sale of an urban property on 26 October 2021, i.e., the same day on which the Constitutional Court Ruling 182/2021 is published declaring the unconstitutionality of articles 107.1(2), 107.2.a) and 107.4 of Consolidated Text of the Local Tax Administration Act. The taxpayer asks if they must file a Tax on the Increase in Value of Urban Land return and pay any taxes owed or if, on the contrary, they are not obligated to pay this tax.
    • The Tax Directorate states that based on the content of the Constitutional Court Ruling declaring the unconstitutionality and nullity of the rules governing the taxable base of the capital gains tax, it is impossible to settle and pay the tax until such time as lawmakers make the pertinent modifications or adaptations to the rules governing the tax in order to adapt it to the requirements of Article 31.3 of the Constitution. And the modification of the tax regulations did not take place until the approval of Legislative Royal Decree 26/2021, of 8 November, which adapts the consolidated text of the Law on Local Tax Administrations, approved by Legislative Royal Decree 2/2004, of 5 March, to the Constitutional Court’s recent case-law regarding Tax on the Increase in Value of Urban Land, which was published in the Official State Gazette on 9 November and took effect the day after its publication. Consequently, the applicant must file a Tax on the Increase in Value of Urban Land return since the taxable event has taken place and the tax has accrued, but is not obligated to pay the tax according to the content of the Constitutional Court’s Ruling 182/2021.