Tax Newsletter

• Ruling of the CJEU of 16 May 2024. VAT. Refunds. Not established.
  • The CJEU has heard Case C-746/22 concerning a request for interpretation of EU law made by the General Court of the Capital of Hungary. First, the CJEU must determine whether national legislation is compatible with the VAT Directive, which, for the purposes of assessing VAT refund applications, does not permit new facts to be pleaded or new evidence to be submitted or brought forward at the appeal stage. Second, as regards the rejection of VAT refund applications, the CJEU must determine whether national legislation that provides for the tax authority to terminate the refund procedure in the event that the taxable person applying for a refund fails to respond to a request from the tax authority or to comply with its obligation to rectify the situation, thereby rendering it impossible to assess the application, without the procedure being continued ex officio, is to be interpreted in conformity with EU law.
  • The CJEU finds that any national legislation that prohibits a taxable person from providing, at the appeal stage, supplementary information that was not provided within the initial period of one month set out in Article 20(2) of the VAT Directive is contrary to EU law, since such a period does not constitute a time limit, and, accordingly, the legislative provision prevents VAT from being correctly refunded. With regard to the second question, the CJEU finds that national legislation that provides for the termination of the VAT refund procedure, where the taxable person has not provided the requested additional information within the prescribed period, thereby preventing the refund application from being processed, is not contrary to EU law, provided that the termination decision constitutes a decision to reject the refund application that may be challenged by means of an appeal.
• Ruling of the CJEU of 13 June 2024. VAT. Permanent establishments.
  • The CJEU has heard Case C-533/22 concerning a request for interpretation of EU law made by the Arges Court of Romania. The first question to be considered regards whether a tax administration's classification of an independent resident legal entity as a permanent establishment of a non-resident company, by virtue of the fact that the two commercial entities belong to the same group, is in accordance with EU law. The second question concerns whether the VAT Directive precludes the existence of a permanent establishment of a non-resident entity by reason of the services that the resident company provides to the non-resident company. Finally, the CJEU must determine whether, in cases where a non-resident company has human and technical resources that it uses to provide services to process and supply goods through a company resident in a Member State, Article 192a(b) of the VAT Directive must be interpreted as meaning that such processing services are services received by the non-resident company from the resident company or, alternatively, that such services are services provided to itself by the non-resident company.
  • As regards the first question, the CJEU finds that the presence of or link between two companies by virtue of a service contract is not a valid condition for determining the existence of a fixed establishment for VAT purposes. With regard to the second question, if a company subject to VAT incorporated in one Member State receives processing services from a company incorporated in another Member State and has a structure in the latter Member State engaged in the supply of the resulting products, even if the majority of the supplies are carried out outside the latter Member State and the supplies within such Member State are subject to VAT, this is not relevant for determining whether the company has a fixed establishment in the latter Member State for the purposes of determining the place of supply of the services. Finally, regarding the third question, the CJEU declares that a company subject to VAT whose main business activity is based in one Member State and which benefits from services provided by another company established in another Member State does not have a fixed establishment in the latter Member State if the human and technical resources are not different from those through which the services are provided or if such human and technical resources only carry out preparatory or ancillary activities.

• Ruling of the CJEU of 30 May 2024. Income tax. Free movement of workers.
  • The CJEU has heard Case C-627/22 concerning a request for interpretation of EU law made by the German Tax Court. The question to be resolved concerns whether German law is contrary to the Agreement on the Free Movement of Persons (AFMP) by allowing nationals resident in EU countries to opt to be taxed for income tax based on income from employment that is taxable in Germany ("voluntary assessment"). In particular, German legislation provides for the possibility of receiving an income tax refund based on deducting income-related expenses and crediting withheld wage tax in Germany.However, the legislation in question denies the possibility of exercising this right to a German national resident in Switzerland.
  • The CJEU finds that the German legislation preventing German nationals residing in Switzerland from exercising their right to taxation is contrary to Articles 7 and 15 of the AFMP as it constitutes a difference in treatment based on the place of residence of the employed German national.

• Ruling of the Madrid Supreme Court of 21 March 2024. Non-Resident Income Tax. Tax Residence. Means of proof.
  • The Madrid Supreme Court of Justice has heard an appeal filed regarding the provisional settlement agreement for Income Tax for Non-Residents (IRNR) corresponding to tax year 2016. In this case, the Chamber must rule on whether the appellant has proved that he was a tax resident in Mexico during the year in question, despite the fact that he did not provide a certificate of tax residence in such country.
  • The Chamber upholds the appeal and indicates that, contrary to the claims of the Tax Administration and the Regional Economic-Administrative Court of Madrid (TEAR), the provision of the income tax return filed in Mexico and a certificate issued by the employing entity specifying the work carried out by the appellant in the other country constitute valid means of proof for the accreditation of tax residence. In conclusion, the Chamber of the Madrid Supreme Court of Justice confirms that it is possible to prove tax residence by means of proof other than the tax residence certificate.

• Binding Consultation V0006-24 of 16 February 2024. VAT. Taxability.
  • The applicant is a commercial entity that is currently undertaking a project to construct a single-family house with a swimming pool with the intention of ultimately selling the property to members of the commercial entity. In this regard, the Tax Agency rejects the deductibility of the tax paid for such construction work and the purchase of the plot of land on which the work is being undertaken, as it considers that these are unrelated to any business activity. The question submitted to the Directorate-General for Taxation (DGT) regards whether, at the time of the sale, the tax payments previously made on the construction work can be deducted and, if so, at what percentage, as well as the tax rate applicable to the purchase of the plot of land and the construction work.
  • The DGT responds that, notwithstanding the fact that the applicant is considered to be a businessperson or professional by virtue of Article 5 of the Spanish VAT Law, the Spanish Tax Administration Agency has determined that the plot of land and the property constructed thereon do not form part of a business asset or the exercise of any business activity. Accordingly, the transfer would not be subject to VAT, and the applicant would not be entitled to deduct the input VAT.

Non-Resident Income Tax (IRNR)

• Binding Consultation V0159-24 of 19 February 2024. Non-Resident Income Tax. Capital gains. Spain-Switzerland Double Taxation Agreement (CDI).
• The applicant is a natural person residing for tax purposes in Switzerland and the owner of 50% of a Spanish limited liability company. The Spanish company undertakes real estate development activities, and once it has sold its entire stock, the partners intend to dissolve and liquidate the company, collecting their share of the liquidation proceeds. It is expected that the company's assets will be mainly cash at the time of dissolution and liquidation and that, as a result of such dissolution, the applicant will obtain income from the difference between the acquisition value of the shareholding and the value of the liquidation share of the entity. The question submitted to the Directorate-General for Taxation (DGT) concerns the classification and taxation of the income obtained by the non-resident taxpayer in Spain upon the dissolution and liquidation of the Spanish company.
• The DGT responds to the question raised and determines that the capital gains obtained from the transaction in Switzerland must be taxed in accordance with the provisions of Article 13 of the double taxation agreement (DTA) between Spain and Switzerland, being taxed in accordance with Swiss legislation, due to the fact that the assets consist mainly of cash and do not include any real estate after the dissolution and liquidation of a company.