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Newsletter Fiscal May 23

Tax Newsletter

May 23

Daniel Tarroja, Tax Partner
02/06/2023
Newsletter Fiscal May 23

Corporate Tax

  • Ruling of the Court of Justice of the European Union of 27 April 2023. Corporate Tax. Free movement of capital. Taxation of income from immovable property.
    • The Federal Finance Court of Germany has raised a question to the CJEU as to whether EU law, specifically article 63 of the TFEU, conflicts with a rule in a Member State by which domestic specialised property funds with exclusively foreign investors are exempt from Corporate Tax, while they are subject to limited liability for corporate tax on their rental income obtained within the Member State.
    • The CJEU responds to the question referred by the German Court and considers that Article 63 of the TFEU establishing the free movement of capital must be interpreted as precluding legislation of a Member State which makes non-resident specialised property funds liable in respect of the income from property they receive in the territory of that Member State, while resident specialised property funds are exempted from that tax.
  • Ruling of the Court of Justice of the European Union of 11 May 2023. Corporate Tax. Taxation of a group. Tax exemption of dividends. Freedom of establishment.
    • Manitou BF received dividends in 2011 from subsidiaries established in Member States other than France, which were subject to the tax regime for parent companies under Articles 145 and 216 of the CGI (French General Tax Code). In accordance with Article 216.(I), it deducted those dividends from its net profit, with the exception of a proportion of costs and expenses, fixed at 5% of the amount of dividends received. Manitou BF sought reimbursement of part of the initial amount of corporate tax to which it was liable for the tax year ended in 2011, corresponding to the add-back of that proportion to its taxable revenue, on the ground that that add-back had been made pursuant to national provisions that undermine the freedom of establishment.
    • In answer to the questions raised, the CJEU held that Article 49 TFEU must be interpreted as precluding legislation of a Member State, relating to a tax integration scheme under which (1) a resident parent company that has opted for tax integration with resident companies is entitled to neutralisation as regards the add-back of a proportion of costs and expenses, fixed at 5% of the net amount of the dividends received by it from its subsidiaries located in other Member States which, had they been resident, would have been eligible in practice, if they so elected, for the tax integration regime; (2) whereas a resident parent company that has not opted for such tax integration despite the existence of capital links with other resident companies permitting it is refused such neutralisation.

Value Added Tax

  • Ruling of the Court of Justice of the European Union of 17 May 2023. VAT. Belgium. Obligation to declare and pay VAT. Penalties laid down for the failure of a taxable person to comply with the obligations.
    • Since June 2013, CEZAM has failed to submit periodic VAT returns. The Belgian tax authorities drew up a formal record of assessment in respect of the year 2013. Next, they carried out an inspection of CEZAM’s accounts, making the corresponding assessment for the years 2014 and 2015. CEZAM justifies its failure to submit returns by the fact that the Belgian tax authorities had refused it an arrangement to defer payment of the VAT debts. It disputes, in particular, the amount of the fines, which correspond to 20% of the amount of VAT which would have been due before subtracting deductible VAT. For the purpose of calculating the fines, it argues, the Belgian tax authorities should have taken account of the amount of VAT which had actually to be paid to them, that is to say, the amount after the subtraction of deductible VAT. The approach adopted in this case by those authorities infringes, in its view, the right to deduct input VAT and the principle of fiscal neutrality.
    • The CJEU rules that Article 273 of the VAT Directive and the principles of proportionality and fiscal neutrality must be interpreted as not precluding national legislation pursuant to which the failure to comply with the obligation to declare and pay VAT to the Treasury is penalised by a flat-rate fine amounting to 20% of the amount of VAT which would have been due before subtracting deductible VAT.S
  • Ruling of the Supreme Court of 3 May 2023. VAT. Tax exemptions. Companies with publicly-owned capital.
    • In this case, the High Court of Justice of Cantabria rejected the administrative appeal lodged by the company Sociedad Regional de Educación, Cultura y Deporte on the grounds that the tax exemption under Article 20.One.14 of the VAT Law (LIVA) is not applicable to the company’s activity, given that the company does not have the legal status of a company under public law.
    • The question at issue in this case lies in determining whether with respect to the tax exemption under Article 20.One.14 of the VAT Law, commercial companies with wholly State-owned capital may be considered entities under public law; and if so, establish the cases and conditions which must be complied with by said companies to be given this status.
    • The Supreme Court ruled that with respect to the tax exemption under Article 20.One. 14 of the VAT Law, wholly State-owned commercial companies with a legal status similar to that of government foundations may be considered entities under public law and thus benefit from the tax exemption under VAT Law when they provide cultural services in the terms described in the above article with respect to Article 132.1.n) of the VAT Directive.

Personal Income Tax

  • Binding Query V0738-23 of 28 March 2023. Personal Income Tax. Double taxation. United Kingdom Double Taxation Treaty.
    • The petitioner, who is retired pensioner and a UK citizen, lived in Spain from 2015 to August 2021, when on the death of his wife, he returned to the UK, and notified the authorities that he was resuming his residence there. The pension payments received from August to December 2021 (according to him, “pension received as a former public-sector worker in the UK”), were subject to withholding in the UK. However, in Spain he must file an income-tax return, given that he was resident for more than 183 days in Spain in 2021. The query is whether he can claim the withholdings made in the UK on his pension payments received from August to December 2021.
    • The Tax Directorate answered the question arguing that if the pension is paid from funds created by the United Kingdom for services previously provided to the UK Government, to the extent that the pension is not paid due to services provided within the framework of an economic activity carried out for the United Kingdom or one of its political subdivisions or local corporations, this pension would be exempt from tax in Spain, and may only be subject to a levy in the UK, without prejudice to any tax obligation the petitioner may have with respect to any other income which he may obtain in Spain or abroad. However, although this pension is not subject to personal income tax in Spain (if it is exempt under the Treaty), it would be taken into account when calculating the tax on the rest of the petitioner’s income in the 2021 tax period.

Other pronouncements

  • Ruling of the High Court of Justice of Catalonia of 9 February 2023. General Tax Law (LGT). Electronic notifications.
    • The conflict in this case arises from the issue of assessments for the Tax on Increases in Value of Urban Land (Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana, IIVTNU) by the local council on the website of a legal person. When the interested party appealed against these assessments, the tax authorities did not accept the appeal on the grounds of time limitation.
    • The High Court of Justice of Catalonia ruled on the need for the local council to issue an alert by remote electronic means to the taxpayer warning that a notice is available on the website. In its ruling, the Court considers that no warning has to be given to the interested party, as it is the latter’s obligation to access the website every 10 days to check whether any notification has been issued. It adds that taxpayer alerts, under Constitutional Court Ruling 6/2019, are merely an accessory for better information, but in no case are they a requirement for the notice to be valid.
  • Ruling of the Court of Justice of the European Union of 17 May 2023. VAT. Belgium. Obligation to declare and pay VAT. Penalties laid down for the failure of a taxable person to comply with the obligations.
    • Since June 2013, CEZAM has failed to submit periodic VAT returns. The Belgian tax authorities drew up a formal record of assessment in respect of the year 2013. Next, they carried out an inspection of CEZAM’s accounts, making the corresponding assessment for the years 2014 and 2015. CEZAM justifies its failure to submit returns by the fact that the Belgian tax authorities had refused it an arrangement to defer payment of the VAT debts. It disputes, in particular, the amount of the fines, which correspond to 20% of the amount of VAT which would have been due before subtracting deductible VAT. For the purpose of calculating the fines, it argues, the Belgian tax authorities should have taken account of the amount of VAT which had actually to be paid to them, that is to say, the amount after the subtraction of deductible VAT. The approach adopted in this case by those authorities infringes, in its view, the right to deduct input VAT and the principle of fiscal neutrality.
    • The CJEU rules that Article 273 of the VAT Directive and the principles of proportionality and fiscal neutrality must be interpreted as not precluding national legislation pursuant to which the failure to comply with the obligation to declare and pay VAT to the Treasury is penalised by a flat-rate fine amounting to 20% of the amount of VAT which would have been due before subtracting deductible VAT.S
  • Ruling of the Supreme Court of 3 May 2023. VAT. Tax exemptions. Companies with publicly-owned capital.
    • In this case, the High Court of Justice of Cantabria rejected the administrative appeal lodged by the company Sociedad Regional de Educación, Cultura y Deporte on the grounds that the tax exemption under Article 20.One.14 of the VAT Law (LIVA) is not applicable to the company’s activity, given that the company does not have the legal status of a company under public law.
    • The question at issue in this case lies in determining whether with respect to the tax exemption under Article 20.One.14 of the VAT Law, commercial companies with wholly State-owned capital may be considered entities under public law; and if so, establish the cases and conditions which must be complied with by said companies to be given this status.
    • The Supreme Court ruled that with respect to the tax exemption under Article 20.One. 14 of the VAT Law, wholly State-owned commercial companies with a legal status similar to that of government foundations may be considered entities under public law and thus benefit from the tax exemption under VAT Law when they provide cultural services in the terms described in the above article with respect to Article 132.1.n) of the VAT Directive.