Newsletter Tax March 23

Tax Newsletter

March 23

Daniel Tarroja, Tax Partner
Newsletter Tax March 23

Personal Income Tax

  • Binding query V0057-23 of 17 January 2023. Personal Income Tax (IRPF). Taxation. Telework.
    • The person raising the issue with the Tax Directorate is a Spanish citizen who resides in Spain.However, he works remotely for a company in Switzerland that does not have an establishment in Spain.
    • The Tax Directorate was asked to decide on the treatment of personal income tax. The petitioner also asked the Tax Directorate to rule on the same question, this time involving teleworking for a company resident in Germany.
    • Based on the interpretation of the double taxation agreement, if the company that pays the salary is a tax resident in Switzerland the employee’s salary may be taxed as income earned in Spain unless the work is performed in Switzerland. The conclusion is the same for the employer based in Germany. The employer is obligated to withhold taxes accordingly, regardless of whether or not it operates in Spain.

Corporate Tax

  • Spain’s National Court ruling of 27 November 2023. Corporate Tax. Related party transactions. Joint venture.
    • The SAS joint venture was created by two companies for the tender and execution of an oil field development project in Abu Dhabi. The consortium of companies that signed the project development contract with the Emirati company hired the SAS joint venture to manage the project, leaving the material execution of the construction in the hands of the consortium. As a result, the tax authorities conducted a series of audits that resulted in the State Tax Administration Agency (AEAT) making an adjustment to the value of the transactions between the SAS joint venture and its members, based on AEAT’s opinion that the appellant failed to generate any added value.
    • The dispute therefore centres around analysing the joint venture’s operations abroad and its generation of added value.
    • The conclusion reached by the National Court from an analysis of the functions performed by the joint venture is that the joint venture, not its members, was the one that performed the functions, managed the assets and assumed the risks of the project. Thus, the Court considers that the joint venture does in fact generate added value. Since the Settlement Agreement was predicated on this premise, once it was set aside, the valuation was rendered null and void.
  • Central Economic-Administrative Court (TEAC) Resolution of 23 January 2023.. Corporate Tax. Tax consolidation. Requirements. Limits on the irrevocability of tax options.
    • The appellant had been part of a consolidated tax group but was excluded from the group based on its earnings and as a result started to file its tax returns on an individual basis.The appellant subsequently submitted a corrected tax return where it made a number of off balance sheet adjustments that reduced its tax burden, which it was unable to make at the appropriate time since it was excluded from the tax consolidation group after the submission.
    • The TEAC must rule on the possibility of the company availing itself of the unrestricted depreciation option once the regulatory deadline has elapsed, which it was unable to do sooner due to the circumstances described above.
    • In the TEAC's opinion, acknowledging that unrestricted depreciation is a tax option and that, as such, it should have been taken by the regulatory filing deadline, given the substantial change in circumstances leading to the exercise of one or another option (as in this case), the company should be allowed to change the originally chosen option.

Value Added Tax

  • Supreme Court ruling of 23 February 2023. VAT. Deduction of input VAT.Tax option. Taxpayer’s rights.
    • The Real Madrid Football Club filed its VAT returns in a timely manner, deducting the input VAT on services rendered by football players’ representatives. However, following an audit in which the deductibility of those VAT payments was denied, the appellant, taking a prudent approach, corrected a number of self-assessments in order to avoid further adjustments and penalties. Also, believing the State Tax Administration Agency's decision to be incorrect, they automatically filed requests for the adjustment of the self-assessments.
    • The question before the Supreme Court was whether the taxpayer can request the rectification and corresponding refund of VAT unduly paid on a supplementary VAT self-assessment in which it has reported higher input tax payments and which it filed in response to the decision of the tax authorities stemming from a prior audit so as to avoid penalties, or whether, on the contrary, the right to deduct the input tax payments can only be exercised on a subsequent self-assessment by the legally established filing deadline.
    • The High Court ruled that the right of deduction is a taxpayer right, since the objective and volitional elements required for the option are missing, and that what we are dealing with here is the exercise of an autonomous right enshrined in a law without alternatives or exclusions.This means that taxpayers may request the rectification and corresponding refund of unduly paid VAT in respect of a supplementary VAT self-assessment submitted for the reasons set out above.
  • Central Economic-Administrative Court (TEAC) Resolution of 21 February 2023. VAT. Renting business with added insurance provision.Independent activity.
    • The complainant operates in the self-drive vehicle rental sector.Along with this service, the company also offers insurance coverage. The State Tax Administration Agency maintains that the insurance coverage is autonomous and separate from the vehicle rentals, which means that the amounts paid for it are non-deductible since it is a VAT-exempt activity, but the appellant believes that the insurance is ancillary to the rental business.
    • Consequently, the TEAC must determine whether the insurance coverage offered to customers in the context of a vehicle rental is an independent or ancillary activity.
    • The TEAC determined that the self-insurance mode offered by the appellant, in which the company assumes the risk of the insured damages, is independent and exempt due to the fact that it is optional, but also because of how it is priced and the fact that two separate contracts are signed. Therefore, as an independent activity, the amounts paid on these transactions are non-deductible.

Wealth Tax

  • Supreme Court ruling of 27 February 2023. Wealth Tax. Deductibility of income tax debt. Prior payments.
    • The question at the centre of this appeal consists of confirming or clarifying the existing case law on the deductibility of personal income tax debt within the taxable base for wealth tax, and in particular whether it is appropriate to include in the taxable base for wealth tax the personal income tax payments for prior years or contemporaneously with the year in which the wealth tax accrues, as a result of settlements which at the time of the wealth tax settlement are neither final nor suspended.
    • The Supreme Court maintains, first of all, that only the tax debts that are due and payable on the accrual date of the Wealth Tax are deductible, but not those arising thereafter. Secondly, debts arising from settlements existing on the accrual date of the wealth tax, because they are prior to or contemporaneous with the year in which the tax accrues, may be deducted if they are enforceable, whether because the settlements is not suspended or because it is final.

Transfer Tax and Stamp Duty

  • Supreme Court ruling of 21 February 2023. Transfer Tax. Asset valuation by expert opinion. Reasoning.
    • The appellant was the subject of a limited audit in which the values of certain assets were verified, which resulted in a provisional settlement for the payment of transfer tax on transfers for consideration regarding a causa mortis acquisition of property.
    • The issue to be resolved by the Supreme Court focuses on the requirements stemming from the duty to state the reasons for using the expert opinion method to confirm values, and in particular the need to clearly identify the samples or specimens used in the valuation and to certify the inclusion in the administrative record of the documents in which the values and circumstances surrounding them are stated or reflected.
    • Firstly, the Supreme Court upheld the decision of the Aragón Regional Economic Administrative Court (TEAR), in which it rightly considered that the reasons given by the government of Aragon were insufficient and generic, since the taxpayer has a right to be assured in a sufficiently comprehensive manner that the reasons for correcting the reported value and replacing it with a different one are not the result of a merely discretional decision.Secondly, the Court reaffirms and ratifies its own case law regarding the requirements stemming from the duty to state the reasons for using the expert opinion method to confirm values, and in particular the need to clearly identify the samples or specimens used in the valuation and to certify the inclusion in the administrative record of the documents in which the values and circumstances surrounding them are stated or reflected.

Other pronouncements

  • Ruling of the Court of Justice of the European Union of 2 March 2023 (Case C-16/2022) Tax administration. Judicial cooperation in criminal matters. Classification.
    • The dispute arises from a question referred for a preliminary ruling by a German court seeking to analyse the compatibility of German legislation with Directive 2014/41 (OEI Directive). German law confers on the tax authorities the responsibility for handling criminal tax investigations, assuming the rights and responsibilities of the public prosecutor's office, classifying it as a judicial and issuing authority for the purposes of the EIO Directive.
    • The German court asks whether it can be classified as a judicial and issuing authority in the case described above, where the tax administration is responsible for the criminal investigation, assuming the rights and responsibilities of the public prosecutor's office, all autonomously.
    • The CJEU indicates that it cannot be classified as a judicial authority, since the Directive explicitly designates who can act as such (and it does not include administrative authorities). The same answer applies to the classification as an issuing authority, because although the provision in question contains a final clause indicating any other authority, an EIO requires a judicial decision, which means that a judicial authority must necessarily intervene or validate it.