Tax Newsletter

Case law:

Value Added Tax (VAT)

• Ruling of the Court of Justice of the European Union of 4 October 2024. VAT. Exemption scheme.
  • The CJEU has heard Case C-171/23 concerning a request for interpretation of European Union law made by the Administrative Court of Zagreb, Croatia. Specifically, the CJEU must rule on whether European Union law imposes an obligation on the authorities of Member States to determine liability for VAT, where the objective facts of the case indicate that VAT fraud has been committed through the creation of a new company in order to benefit from an exemption scheme previously granted to another company. In other words, a question is raised regarding compliance with Community law with regards to the exemption scheme, in cases where a taxable person was involved in fraudulently creating a company, interrupting the continuity of the previous company’s taxable activity that was a beneficiary of an exemption scheme, in cases where national regulations do not specifically state that the aforementioned practice is prohibited.
  • The Court of Justice rules that the VAT Directive 2006/112, read in light of the principle of the prohibition of abusive practices, must be interpreted as meaning that, where it is established that the formation of a company constitutes an abusive practice intended to maintain the benefit of the VAT exemption scheme for an activity previously carried out by another company that benefited from this scheme, Directive 2006/112 requires that the company accordingly formed cannot benefit from that scheme, even in the absence of specific provisions laying down the prohibition of such abusive practices in the national legal system.
• Ruling of the Court of Justice of the European Union of 7 November 2024. VAT. Real estate operations.
  • The CJEU has heard Case C-594/23, concerning the request for an interpretation of European Union law raised by the Western Court of Appeal, Denmark. Specifically, the CJEU must rule on whether the supply of land with, on the date of supply, only the foundations for housing, constitutes a supply of “building land” on the basis of Article 12 of the VAT Directive.
  • The Court of Justice rules that the described operation constitutes a supply of “building land” for the purposes of the aforementioned Article 12 of the VAT Directive. The Court recalls that housing foundations cannot be classified as a building or part of a building, since they can only be considered as some of the component elements of a building. Therefore, the foundations may constitute part of a building, but under no circumstances will they constitute an entire building for the purposes of the Tax. Furthermore, it cannot be understood that the foundations on the land can be occupied. Therefore, the casting of such foundations do not mark the end of the building's construction process and its entry into the consumption sector.
• Supreme Court ruling of 31 October 2024. VAT. Penalty. Principle of proportionality.
  • The Supreme Court settles an appeal for reversal of the ruling issued by the Extremadura High Court involving VAT for the 2015 to 2017 financial years. The question raised in this case is to determine whether, based on the principle of proportionality, a court may reverse a penalty provided for in Article 170(2)(5) of the VAT Law, without the need to raise the issue of unconstitutionality. Specifically, article 170(2)(5) includes the possibility of applying a tax penalty due to a failure to submit a tax return or the submission of incorrect or incomplete tax returns, when this penalty is calculated as a fixed percentage of the amount of the tax not filed, with no possibility of assessing whether or not there is economic damage to modulate the penalty.
  • The High Court refers to the criterion laid down in its judgment of 25 July 2023 (appeal for reversal 5234/2021), and gives a response to the question that a court can reverse a penalty imposed for the commission of a violation regulated in Article 170(2)(5) of the VAT law on the grounds that the principle of proportionality was violated, provided that it quantifies the penalty as a fixed percentage of the amount not filed, with no possibility of assessing whether or not there is economic damage to modulate the penalty, and all without the need to raise the issue of unconstitutionality.

Corporate Tax (CT)

• Supreme Court Ruling of 29 October 2024. Penalty. Deductible expense.
  • The Supreme Court settles an appeal for reversal of the ruling issued by the National High Court involving penalty agreements laid down for corporation tax for the 2009 to 2011 financial years. The question to be examined by the Court is whether the lack of evidence on the tax deductibility of an expense necessarily leads to the taxpayer being considered guilty for penalty purposes, without being able to justify the existence of a reasonable interpretation of the rule in view of the nature, characteristics and context of this expense.
  • The High Court answers the question raised and determines that the lack of evidence of an expense whose deduction is intended does not always lead to the taxpayer being considered guilty, since the Administration will have to duly demonstrate and justify the taxpayer's guilty actions. In addition, the Court recalls that it is not feasible to invoke the reason of exemption from the penalty liability provided for in Article 179.2 d) of the General Tax Law, in cases where the penalty is based on the lack of evidence of a fact necessary for the deductibility of the corresponding expense.

Administrative Doctrine:

Value Added Tax (VAT)

• Binding Query V1491-24 of 18 June 2024. VAT. SII.
  • The petitioner is a company that installs and maintains electrical networks that has a permanent establishment (PE) in Cuba. This PE involves leasing an office where it manages operations in Cuba, incurring costs for telephone, internet, rental, two mobile phones with a line in Cuba and meal expenses for the posted workers. The query submitted to the DGT pertains to the VAT liability of the expenses incurred and invoiced in Cuba, as well as the inclusion of the same in the records of invoices received for the purposes of the SII.
  • The DGT responds to the query raised and determines that, in relation to the first question, the rental, telephone and internet expenses incurred by the PE that the petitioner has in Cuba are considered services related to property in accordance with article 70(1)(1) of the VAT Law, which is why they will not be understood to be incurred in the tax application territory (TAT), and will not be subject to VAT. With regard to the expenses for mobile phones and meals for posted workers, they will be governed by the general rules applicable to the provision of services and will not be subject to VAT. In relation to the second question, the DGT refers to the criterion set out in the Binding Query V1004-18 in which it was determined that transactions carried out from the PE outside the TAT will not be included in the taxpayer's volume of transactions for the purpose of calculating the volume of transactions, which determines the obligation to submit self-assessments on a monthly basis. As a result of the foregoing, invoices received by the petitioner's permanent establishment in Cuba should not be included in the SII.
• Binding Query V1511-24 of 20 June 2024. Personal Income Tax. Exemption from article 7p).
  • The petitioner, a Spanish national, works as an employee for a Cyprus-based river cruise company. The work is carried out on board river cruises in different European countries, but never in Spain. During rest periods, he lives in Valencia (Spain) and, therefore, may stay in Spain for more than 183 days. His employment contract is annual, with a fixed monthly salary, and he receives a monthly allowance for the expenses incurred travelling to the ships. Finally, the petitioner indicates that he does not pay an Income Tax similar to Spanish Personal Income Tax in Cyprus. The query submitted to the DGT relates to the possibility of applying the exemption governed by article 7 p) of the Personal Income Tax Law and the obligation to file the Personal Income Tax return.
  • The DGT responds to the query raised and determines that, based on the consideration that the petitioner is an individual who has his usual residence in Spain, and therefore has the status of taxpayer of Personal Income Tax during the tax period, the application of the aforementioned exemption of article 7 p) of the Personal Income Tax Law will depend on compliance with all the requirements established in the provision. In this case, it is understood that the requirement is met that the work is effectively provided abroad and also, the beneficiary or recipient of the work provided abroad by the petitioner employee is a company that is resident in Cyprus. With regard to the need for earned income to be taxed abroad, if the work is carried out in several countries, like in this case, the fulfilment of this requirement must be analysed in each of the countries to which the worker travels, in such a way that the exemption will be applicable depending on compliance with the aforementioned requirement. And, on the other hand, in relation to the obligation to file the Personal Income Tax return, on the basis that the worker would have only received earned income (from the Cypriot company), the limit determining the obligation to file would be 15,000 euros, not taking into account any income that may be classified as exempt.