Tax Newsletter

Value Added Tax (VAT):

• Judgement of the CJEU of 22 February 2024.VAT. Refunds. Default interest.
  • The CJEU passes a ruling on the preliminary request raised with case number C674/22. The purpose of the issue raised with the CJEU is to find out if European Union law required the payment of default interest by a Tax Authority, in cases where the refund of a tax to the taxpayer is a result of an error by the taxpayer. More specifically, the litigation arises in the Netherlands as a result of a municipality carrying out economic activities subject to VAT, in which it determined new deductible VAT rates charged and paid resulting from having corrected errors in its accounting, and subsequently requesting the refund of the excess VAT that was paid.
  • The TJUE resolves the preliminary question posed, stating that the Union law must be interpreted in the sense that it does not require the Authorities to pay interest to a taxpayer as from the payment of a VAT amount that is subsequently refunded by the Tax Authority, when this refund is mandatory due to errors made by the taxpayer.
• Judgement of the Supreme Court of 29 of January 2024. VAT. Company cars for employees.
  • The Supreme Court resolves the appeal for cassation No. 5226/2022 filed against the judgement by the National Court regarding the settlement agreement for VAT spanning the period from May 2009 to December 2011. The controversial issue in this case concerns whether the transfer of the use of a vehicle by a company to an employee for private use for free is subject to VAT if the amount of VAT charged through the purchase of the vehicle has been deducted.
  • The High Court dismissed the cassation appeal and establishes that the transfer by the taxpayer regarding the use of a vehicle to his/her employee for his/her private use for free, when that employee does not make any payment or stops receiving part of his/her remuneration and the right to use the said vehicle is not linked to the waiver of other fringe benefits, since it is a transaction that is not subject to VAT, although the VAT paid for the rent on the vehicle has been deducted.

• Judgement of the Supreme Court of 25 January 2024.VAT. Electronic advertising services.
  • The Supreme Court resolves the appeal for cassation No. 5994/2022 filed against the judgment by the High Court of Justice of Catalonia regarding the settlement agreement issued by the Regional Inspectorate (Dependencia Regional de Inspección) for VAT in 2015. The question on which the High Court should rule is to reaffirm, strengthen or, where appropriate, complete or clarify the case law established in its rulings of 16 and 17 December 2019 (rec. 6477/2018, ECLI:ES:TS:2019:4102 and rec. 6274/2018, ECLI:ES:TS:2019:4073) on the concept of "use or effective operation" provided for in Article 70. Two of the Spanish Value Added Tax Act, concerning advertising services, when such services are provided electronically via the internet.
  • The High Court dismisses this appeal for cassation and confirms the case law doctrine established in the aforementioned judgements, stating that it is fitting, in light of the foregoing considerations, to declare that the advertising, consultancy, marketing and advisory services provided by an undertaking such as the appellant, established in the territory where the tax applies, are subject to VAT even though the services are rendered to another undertaking not established in that territory (but rather in Gibraltar) which is engaged in the supply of on-line gaming services via digital platforms and the latter undertaking uses or operates the services provided by the former in the territory where the tax is applicable.

• Binding consultation V3173-23, of 11 of December 2023. VAT. Subjection to Taxation.
  • The enquirer and his spouse signed a private sale and purchase agreement for an unbuilt flat with a developer who was developing the said site through a construction company. The said developer initially intended to allocate the property as his own home, although due to different reasons he decided to sell it. The enquirer queries the subjection to VAT concerning the purchase of the property.
  • The DGT states that it is important to note that the status of business owner or professional is closely linked to the intention of sale, loan or allocation by means of any title of the developed buildings. If this is not the case, the consideration of a business owner or professional will cease to exist, and the transactions will be carried out outside the scope of applicable VAT. Since the seller, as shown in the consultation letter, was the developer of the construction of the property with the intention of allocating it exclusively for his own use, rather than for sale or conveyance by any title, and there was no desire to intervene in the production or distribution of goods or services, he should not be considered a business owner or professional regarding this operation. Therefore, the subsequent sale of the property will not be subject to VAT, as it is not carried out by a business owner or professional in the undertaking of a business activity.

Personal Income Tax (IRPF):

• Central Economic Administrative Court (TEAC) judgement of 18 December 2023. Personal Income Tax Withholdings. Change of criterion.
  • The TEAC is aware of the claim filed against the settlement for the tax concept of withholdings on Personal Income Tax, in years 2013 to 2013. The controversy in question in this case deals with whether by simply invoking the "relationship theory" signifies that the special working relationship of the senior management is subordinate to the company binding the Directors and/or members of the Board of Directors to a company.
  • In line with the Supreme Court's criteria in its judgements of 27 June 2023 (appeal for cassation 6442/2021) and of 2 November 2023 (appeal for cassation 3940/2022), the TEAC modifies its criterion to the extent that the mere existence of a business relationship is not sufficient to dispense with senior management working relations and the possible exemption of part of the severance pay received stemming from such, in accordance with the priority of organizational relationships binding Directors and the members of the Board of Directors to the company.
• Binding Consultation V3241-23, of 13 December 2023. Personal Income Tax. Yield from work for work carried out abroad.
  • The enquirer wishes to know whether days spent travelling (the day of departure abroad and the day of return to Spain), regardless of the time of departure of the flight, are eligible for the exemption regulated under Article 7 p) of the Personal Income Tax Act (LIRPF).
  • The DGT responds to the query raised, recalling the Supreme Court judgement of 25 February 2021 (rec. No. 1990/2019) in which the High Court ruled that it is consistent and reasonable to construe that the terms “work effectively carried out abroad” include the days of arrival and departure. Not taking these days into account implies an interpretation contrary to the postulates that govern this exemption. Therefore, the expression "yield from work actually carried out abroad" in article 7 p) LIRPF must be construed as including work yield by employees for the day of travel to the country where the work is to take place and the day of travel when returning to Spain.
• Binding Consultation V2571-23 of 26 October 2023. Personal Income Tax. Special scheme for displaced workers.
  • The enquirer states that he pays tax under the special scheme applicable to workers displaced within Spanish territory and that he has received income from the Social Security associated with payment for paternity leave in 2022. The query raised with the DGT is about whether such income is exempt from taxation under the special regime regulated by article 93 of the Personal Income Tax Act (LIRPF).
  • The DGT replies to the query raised by the enquirer, briefly discussing the regulatory framework by which the application of this special regime will involve, under the terms established by the regulations, determining the tax debt of the Personal Income Tax in accordance with the rules established in the consolidated text of the Act on Income Tax for Non-Residents (LIRNR) for income obtained without the mediation of permanent establishment with certain specialties, including, according to item a), that the provisions of Article 14 of the aforementioned consolidated text will not apply. Consequently, if, as stated therein, the taxpayer pays tax under the special regime provided for in Article 93 of the LIRPF, the exemption provided for in Article 7 h) of the LIRPF will not apply.

Income Tax for Non-Residents (IRNR):

• Judgement of Spain’s National Court of 22 December 2023 IRNR. Withholdings.
  • The National Court rules on the contentious administrative appeal filed against the TEAC ruling, which dismissed the appeal raised in relation to the IRNR tax concept. The controversial issue concerns whether there is discrimination in the taxation of resident and non-resident collective investment institutions in Spanish territory for IRNR.
  • The National Court allows the appeal brought forward and concludes that the Spanish regulations governing IRNR, insofar as withholdings at source are made between 15% and 18% regarding non-resident Collective Investment Institutions, without the possibility of refund, whereas a rate of 1% is applied to resident companies and allowing the refund of excess withholdings, is discriminatory and contrary to EU law.