Tax Newsletter

Value Added Tax (VAT)

• Spain’s National Court Ruling of 14 September 2023. Value Added Tax. Reduction of Taxable Base. Issuing a corrected invoice  
  • The National Court settles contentious-administrative appeal no. 2611/2019 in which the parties disagree on the grounds that justify the appellant issuing a corrected invoice. On the one hand, the Administration maintains that there is no legal basis for issuing a corrected invoice since it is a case of debt forgiveness, whereas appellant argues that it is fitting to issue a corrected considering that it is in response to a non-payment by the debtor enterprise.
  • The National Court dismisses this contentious-administrative appeal, indicating that the right to amend the taxable base for VAT does not apply in cases of debt forgiveness. In this case, the corrected invoice was issued in respect of the amount of the debtor’s outstanding balance that was waived by appellant in view of the civil court proceedings involving the parties, as well as the settlement agreement reached by the parties wherein the creditor agreed to waive a part of the debt owed to it by the debtor. Hence, this is not a case of non-payment but rather a definitive reduction of the initial balance owed and the output VAT cannot be recovered by issuing a corrected invoice. Consequently, the National Court determines that there is no legal basis for allowing a corrected invoice to be issued since it is issued in response to the forgiveness of the debt.

Corporation Tax (IS)

• Supreme Court Ruling of 19 October 2023. Corporation Tax. Cash pooling. Obligation to withhold and make payments on account
  • In cassation appeal no. 1878/2023 filed against the ruling of the Supreme Court of the Balearic Islands, the Supreme Court is asked to rule on whether Corporation Tax withholdings and payments on account for interest derived from cash pooling agreements must be carried out monthly or annually.
  • In the Supreme Court’s opinion, cash pooling is a complex contractual arrangement which is largely unregulated and subject to what the parties themselves have agreed vis-a-vis the content and enforceability of their obligations, so it is not possible to formulate a doctrine that can be applied to contracts of this nature. However, the High Court notes that insofar as withholding obligations are concerned, the contractual obligation to pay interest at a specific time, in this case annually, is not incompatible with the obligation to withhold the interest settled for shorter periods of time. This would apply when interest payments are calculated based on balances with shorter timeframes. If these amounts are added to the primary transaction, contributing to the cash flows of the cash pooling contract by the contractual party receiving such interest, it is consistent with the interest payment requirements defined in Article 63.1 of the Corporation Tax Regulation.

Personal Income Tax (IRPF)

• Supreme Court Ruling of 27 October 2023.  Personal Income Tax. Comprehensive adjustment. Simulation  
  • In cassation appeal no. 248/2022, the Supreme Court must rule on a question involving tax adjustment proceedings in which a simulation is detected. In this case, the tax advantage of the intermediary company is eliminated and the revenue of the enterprise of which it is the majority shareholder and joint and several director is allocated to the individual as earned income. The Supreme Court must rule on whether the individual who must pay personal income tax is allowed to deduct the taxes not withheld by the payor companies.
  • According to the Supreme Court’s interpretation of the question, within the framework of such tax adjustment proceedings in a company that is considered an intermediary, the individual who must pay personal income tax is not allowed to deduct the taxes not withheld by the payor companies.

Non-Resident Income Tax (IRNR)

• TEAC (Spanish Central Economic-Administrative Court) Resolution of 24 July 2023. Non-Resident Income Tax. Evidentiary value of the receipts or payment confirmations that do not contain the recipient’s details for the purposes of deductible business expenses pursuant to Article 24.6 of the consolidated text of the Non-Resident Income Tax Law (TRLIRNR) and accreditation of physical presence for residency purposes.
  • The disputed issue in this case is whether the receipts or payment confirmations serve as proof for the purpose of accrediting the taxpayer’s tax residence and as justifying documents to support deductible business expenses.
  • The TEAC rejects the claim, considering that the receipts or payment confirmations, which do not reliably demonstrate to whom the services are rendered, cannot be used to prove a direct and inseparable connection with the business activity or the person on whose behalf the activity was performed. Hence, they are rejected as justifying documents in support of deductible business expenses and as proof of physical presence in Spain or another jurisdiction.

Inheritance and Gift Tax (ISD)

• Binding Query V1814-23 of 21 June 2023. Inheritance and Gift Tax. Double Taxation Convention. Insurance contract
  • The taxpayer, a tax resident in Spain, has been named along with his brother as legatees of a sum of money to be determined, corresponding to 45% of the net assets of the total estate of his uncle, a resident in France. The successors have one year to liquidate all the inherited assets and receive the proceeds, which will have been taxed in France. The taxpayer and his brother are also beneficiaries of two life insurance policies taken out by their uncle with a French insurance company. The taxpayer is considering the application of the Convention of 8 January 1963 between France and Spain to avoid double taxation, whereunder both the inheritance and the life insurance policies should only be taxed in France. The question put to the Directorate General for Taxes (DGT) concerns the obligation to file the Spanish Inheritance and Gift Tax (ISD) form for information purposes only.
  • The DGT’s response is that the money left to the taxpayer by his uncle following the latter’s death and the amounts received as beneficiary of the life insurance policies taken out by his uncle are subject to the Inheritance and Gift Tax in Spain. Pursuant to Article 5 of the Inheritance and Gift Tax Law (LISD), the taxpayer, in this case the one asking the question, is responsible for the payment of the ISD as a tax resident in Spain. However, there is a convention to avoid double taxation in inheritance matters signed with France which takes precedence over Spanish tax law. According to Article 33 of the Convention, the amount of money received by the taxpayer as legatee is only taxable in France if the assets that were sold, and from which the inheritance money originated, were located in France when the taxpayer’s uncle died. According to Article 34 of the Convention, the life insurance benefit received by the taxpayer as the beneficiary is only taxable in the State where the deceased resided at the time of death, in this case France. However, the DGT notes that according to the provisions of the Convention, if the money bequeathed to the taxpayer and the insurance benefit paid to the taxpayer as the beneficiary of the insurance policy are subject to the ISD in France rather than in Spain, the taxpayer is not obligated to file an ISD tax return in Spain, even for information purposes.

Other decisions of interest

• Supreme Court Ruling of 23 October 2023.. Tax on Construction Work and Installations (ICIO). Statute of limitations. Dies a quo.
  • In cassation appeal no. 3935/2022, the Supreme Court must determine the dies a quo (starting date) of the statute of limitations for requesting a refund of ICIO overpayment in those cases where the work was not carried out due to the applicant withdrawing. The question posed to the Court focuses on clarifying whether it is the time elapsed since the licence or any extensions were granted that should be taken into account, or whether an official declaration of expiry by the City Council is required for the clock to start running, without which there is no starting point (dies a quo) for computation purposes.
  • The Supreme Court rejected the appeal, on the understanding that for dies a quo, i.e., computation of the statute of limitations for requesting a refund of ICIO overpayment, in those cases where the work is not performed due to the applicant withdrawing, the applicant must explicitly withdraw from the project or reject the building permit. Alternatively, a formal declaration of expiry of the licence by the municipality is required. These declarations are essential because they confirm that the work is not going to be carried out and therefore the taxable event is not going to take place.

• Supreme Court Ruling of 23 October 2023. Business succession. Shareholders’ liability for the obligations of the dissolved enterprise
  • The question on which the High Court must rule is whether, in cases where the Tax Administration notifies a partner, participant or co-owner of his or her status as successor under Article 40 of the General Tax Law (LGT) of the company's outstanding tax obligations, the Administration must specify in such notification whether the company had been dissolved and liquidated, in which case the liability of the partners, participants or co-owners is as regulated in Article 40.1 of the LGT; moreover, whether the Administration must indicate the limit of the partners’ liability or whether it is a case of winding up or dissolution without liquidation of the company or enterprise, as provided for in Article 40.3 of the LGT, in which case the liability of the partners, participants or co-owners is unlimited.
  • The High Court rejects the appeal and rules that in cases where the Administration informs a partner, participant or co-owner of his or her status as successor under Article 40 of the LGT of the outstanding tax obligations of the company or enterprise in which the law limits the liability of the partners, participants or co-owners, the Administration must specify in such notification if it knows whether the company has been dissolved and liquidated, in which case the liability of the partners, participants or co-owners is as regulated in Article 40.1 of the LGT; moreover, the Administration must indicate the limit of the partners’ liability or whether it is a case of winding up or dissolution without liquidation of the company or enterprise, as provided for in Article 40.3 of the LGT, in which case the liability of the partners, participants or co-owners is unlimited.