Tax Newsletter

Case law:

Value Added Tax (VAT)

• Ruling of the Court of Justice of the European Union of 12 September 2024. VAT. Deductions.
  • The CJEU has heard Case C-243/23, concerning a request for an interpretation of European Union law raised by the Court of Appeal in Ghent, Belgium. Specifically, the CJEU must rule on the length of the adjustment period applicable to VAT deductions for construction work carried out on a property used for economic activity.
  • The Court of Justice states that, in light of the principle of fiscal neutrality, a national regulation is contrary to EU law if it does not apply the extended adjustment period for VAT deductions, established for investment properties, to construction work subject to VAT as a service. This interpretation has direct effect in member states, allowing taxable persons to invoke it before a national court against the relevant tax authority if that authority has refused to apply this extended adjustment period.
• Supreme Court ruling of 26 June 2024. VAT. Adjustment of open tax years.
  • The Supreme Court settles an appeal for reversal of the ruling issued by the National High Court involving VAT for the financial year 2010. The first issue the Court must examine is whether judgments from the CJEU interpreting EU VAT law apply to the Spanish tax authorities from the date of issuance, with no retroactive effect (ex nunc), or whether they apply retroactively (ex tunc) to all situations originating before the ruling. The second issue concerns whether, following a change in criteria adopted by the Directorate General of Taxes (DGT) in compliance with ECJ case law regarding a VAT exemption on a particular service, the Administration has the power to adjust the tax assessments for those taxpayers who adhered to the previous criterion for open tax years.
  • The High Court establishes as precedent on the first issue that judgments issued by the CJEU interpreting European Union VAT law have effect on Spanish tax authorities retroactively, applying to all situations that arose prior to the judgment, unless the ruling itself limits its effect. On the second issue, the High Court states that, following a change in criteria by the DGT in compliance with CJEU case law regarding a VAT exemption for a particular service, the tax authorities have full authority to adjust the tax situation of taxpayers who followed the prior criterion, provided this applies only to open tax years.

Corporate Tax (CT)

• Ruling of the Court of Justice of the European Union of 4 October 2024. CT. Freedom of establishment.
  • The European Court has heard Case C-585/22, which concerns a request for interpretation of EU law submitted by the Supreme Court of the Netherlands. Specifically, the CJEU must rule on whether interest paid on an intra-group loan used to finance the acquisition of a non-affiliated company can be tax-deductible under Articles 49, 56, and 63 of the Treaty on the Functioning of the European Union (TFEU).
  • The Court of Justice states that Article 49 of the TFEU does not prevent national legislation from completely disallowing the deduction of interest paid on a loan taken from a related entity to acquire or increase a stake in another entity considered to be linked to the taxpayer, when such a loan is part of an artificial arrangement, even if the loan was agreed under arm's-length conditions and the interest amount does not exceed what would have been agreed between independent companies. However, the CJEU also notes that the taxpayer can rebut the presumption that the arrangement is purely artificial.

Non-Resident Income Tax (IRNR)

• Ruling of the Madrid Supreme Court of 6 May 2024. IRNR. Attribution of real estate income.
  • The High Court of Justice of Madrid has ruled on administrative appeal number 685/2022 regarding the tax treatment of a primary residence for taxpayers under the special regime for inbound expatriates, commonly known as the "Beckham Law". The issue in this case is whether real estate income can be attributed for the number of days the property did not serve as the primary residence of the individual under this regime.
  • The Court upholds the appeal, granting the claimant the right to exempt their primary residence from the attribution of real estate income. According to the Court, the special regime under Article 93 of the Personal Income Tax Law (LIRPF) applies in this case, allowing the taxpayer to be taxed under the Non-Resident Income Tax (IRNR) while retaining their status as an IRPF taxpayer during the tax year in which the change of residence occurs and for the five subsequent tax years. Therefore, Article 85 of the LIRPF applies, as referenced in Article 24.5 of the IRNR Law, which grants an exemption for primary residence from the attribution of real estate income.

Other decisions of interest:

• Judgment of the CJEU of 26 September 2024. Tax and corporate advantages.
  • The European Court has heard Case C-387/22 concerning a request for interpretation of EU law made by the Court of Romania. The question to be determined is whether Articles 26 and 56 of the TFEU, along with Article 20 of Directive 2006/123, prohibit a national regulation that provides different tax treatment to domestic companies depending on whether they conduct activities within the national territory or in another Member State. Specifically, the case examines the compatibility of Romanian tax regulations with EU law, since the latter stipulate that companies providing services abroad cannot benefit from certain tax exemptions available to the construction sector.
  • The Court of Justice declares that Article 56 of the TFEU does not preclude a Member State’s regulation that restricts tax and corporate advantages solely to employees of construction companies operating within its national territory, even when they are in a comparable situation to construction companies with employees posted to other Member States. This is permitted provided that the national regulation is justified by reasons of public interest, adheres to the principle of proportionality, ensures the attainment of the objective pursued, and does not exceed what is necessary to achieve it.

Administrative Doctrine:

Value Added Tax (VAT)

• Binding Query V1381-24 of 11 June 2024. VAT. Real estate lease.
  • The petitioner rents a rural property located in the Taxable Area (TAI) and uses an online platform based outside this territory for the rental process. This platform charges a commission for facilitating the rental of the property. The invoices issued to the petitioner do not include VAT due to the application of the reverse-charge mechanism. The petition directed to the DGT concerns the platform's actions and the potential obligation to submit form 349 for the intermediary services.
  • The DGT responds to the inquiry and determines that the service provided by the company not established in the TAI is subject to VAT at a rate of 21%, based on the mediation carried out on behalf of the petitioner, the owner of the rented property located in that territory. The non-established company will be the taxable person for this operation and must charge VAT to the recipient, with the reverse-charge mechanism not being applicable. Additionally, the acquisition of services from a business owner established in another Member State that are subject to VAT and not exempt will entail the obligation to declare intra-community operations, including those where the reverse-charge rule does not apply.