Tax Newsletter October 22

Tax Newsletter

October 22

Daniel Tarroja, Tax Partner
Tax Newsletter October 22

Value Added Tax (VAT)

  • Supreme Court ruling of 27 September 2022. VAT. Termination of a swap contract.
    • The questions to be answered on appeal refer to (1) determining whether a payment made by a company of the VAT charged to an individual transferor of land in the framework of a swap contract that ends up being terminated is considered not owed and therefore eligible for a refund to be requested using the procedure provided for in Article 221 of the General Tax Law 58/2003; (2) clarifying whether the taxpayer, who is not obligated to file VAT returns, is entitled to request a refund from the tax authorities by exercising the options provided for in Article 89.5 of the Value Added Tax Law 37/1992 of 28 December, or if the taxable person is the only one who can request a correction or refund.
    • The Court finds that Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Article 167 thereof, must be interpreted as meaning that a holding company which carries out taxable output transactions in favour of subsidiaries is not entitled to deduct the input tax levied on the services that it obtains from third parties and supplies to the subsidiaries in return for the grant of a share in the general profit, where, first, the input services have direct and immediate links not with the holding company’s own transactions but with the largely tax-exempt activities of the subsidiaries; second, those services are not included in the price of the taxable transactions carried out in favour of the subsidiaries and, third, the said services are not part of the general costs of the holding company’s own economic activity.
  • Binding Query V1813-22 of 1 August 2022. VAT. Intracommunity delivery of goods. Evidence
    • The petitioner is going to make an intracommunity delivery of goods, transporting the goods himself in his own vehicle.He inquires about the possibility of providing proof of transport by indicating the exact location of the delivery on the delivery note or the invoice, as well as the identity of the person who receives the goods, including their name, tax ID and signature.
    • In this case, the fact that the petitioner states that he himself will transport the goods in his own vehicle means that the reality of the transport can be presumed, in the terms set out above, if the petitioner is in possession of at least two of the documents referred to in Article 45a(3)(a) of Regulation (EU) 282/2011 or, alternatively, one of the documents referred to in point (a) and one of the documents referred to in point (b) of the same paragraph 3. However, regardless of which documents the petitioner possesses, in order to have presumptive effect they must have been drawn up by parties who are independent not only from each other, but also with respect to the petitioner and with respect to the buyer.

Personal Income Tax (IRPF)

  • Supreme Court ruling of 28 September 2022. Personal Income Tax. Reduction of taxable income. Spousal maintenance. Settlement agreements executed before a Court Clerk or a Notary.
    • The question to be settled on appeal is whether the reduction of an individual’s taxable income by the amount of the spousal maintenance paid only applies when the maintenance is approved by a court order or whether, on the contrary, it can be interpreted as also covering cases where it is established in a settlement agreement executed before a clerk of the court or notary, pursuant to the rules regulating separation and divorce by mutual agreement. The matter on appeal basically comes down to an interpretation of article 55 of the Personal income tax law (LIRPF) in relation to the reduction of taxable income by the amount of spousal maintenance and yearly alimony paid, with the exception of the amounts fixed for the taxpayer’s children, both paid by court order.Appellant complains that the interpretation of the lower court in its decision does not take into account the social reality in which the provision is applied.In short, appellant argues that the tax treatment must be the same whether the spousal maintenance is fixed by a court decision at the time of a separation or divorce ruling or whether such spousal maintenance in the event of separation is regulated in a public deed containing the marital agreement. Moreover, in this case, according to appellant, the maintenance is supported by a court ruling.
    • The Supreme Court, for reasons of unity of doctrine and legal security, refers to its ruling of 25 March 2021 on appeal 1212/2020.On that occasion, the court found that "a literal interpretation of article 55 LIRPF seems to support the thesis espoused in the judgment and the appeal of the requirement for judicial intervention. However, it is important to note, on the one hand, that the Non-Contentious Proceedings Act, which modifies the above-transcribed precepts of the Civil Code, is subsequent to it, and on the other hand, that when the current LIRPF was enacted the possibility of settling a divorce or separation before a notary public or court clerk did not exist.This possibility, undoubtedly aimed at facilitating the separation and divorce proceedings and the agreements reached in those proceedings, and at lightening the load of the overburdened Department of Justice, would be thwarted if, as appellant suggests, a subsequent judicial intervention were required in all cases where a separation or divorce that incudes spousal maintenance were settled before a notary or clerk of the court. It is also worthy of note that in separations or divorces finalised before a judge where there is mutual agreement on spousal maintenance, the Judge does not fix the amount but rather accepts the one presented by the parties. Consequently, the answer to the question raised the First Section must be that the spousal maintenance fixed before a notary, by mutual agreement of the parties, or under the same conditions before a court clerk, both fall within the assumptions foreseen in article 55 LIRPF. In this regard, Article 87 of the Civil Code provides that: "The spouses may also agree to divorce by mutual consent, drawing up a settlement agreement before the court clerk or in a public deed before a notary, according to the form and content regulated in Article 82, in which the same circumstances and requirements stipulated therein must be met." Therefore, the Supreme Court finds that the reduction in taxable income for personal income tax by the amount of the spousal maintenance payments also applies where it is established in a settlement agreement executed before a clerk of the court or notary, pursuant to the rules regulating separation and divorce by mutual agreement.
  • Supreme Court ruling of 10 October 2022. Personal Income Tax. Taxation of the dissolution of community property or extinguishment of condominium.
    • The question at the heart of this case consists of determining when the compensation received by a co-owner to whom the property is not awarded when a condominium is dissolved entails, for said co-owner, the existence of a taxable capital gain, considering the possible difference in the value of the property between the acquisition date and the award date and, where applicable, that said compensation was greater than the value of his/her proportional part of the property.
    • The Supreme Court finds that in cases where joint property is divided based on ownership percentages there is no alteration of assets, except in those cases where the value of the received property has appreciated, as occurs when a co-owner receives a cash payment for an amount that is higher than the percentage of ownership in the condominium. Therefore, the answer to the question at the heart of this appeal must be that the payment received by a co-owner to whom the property is not awarded when the condominium is dissolved generates for the said co-owner the existence of a taxable capital gain when the value of the property has appreciated between the acquisition date and the date of the award.
  • Binding Query V1564-22, of 30 June 2022. Personal Income Tax. Capital gains and losses. Capital losses. Assumptions included. Loss of home as a result of the volcanic eruption in La Palma
    • The petitioner lost his home as a consequence of the volcanic eruption on the island of La Palma. His enquiry concerns the taxation of the possible property loss due to destruction.
    • Because the house was destroyed in this case, the petitioner will receive an insurance settlement and may also receive public aid (aid which is not personal in nature because, as indicated by the petitioner, it is not for personal damages sustained by the petitioner but rather for damages caused to his property). He also states that he made improvements to the destroyed property.Therefore, the capital gain or loss caused by the destruction of the property is obtained by subtracting the acquisition price of the property (the part that was destroyed) from the insurance settlement (and any aid received, if applicable). According to the terms of article 35 LIRPF, the acquisition price includes the amount paid to purchase the property, the amount of the improvements made to the property, and the expenses and taxes inherent to the acquisition paid at the time by the petitioner. If there is a capital gain it is exempt in accordance with what is stated above.If there is a capital loss, it must be reported in the tax year in which the payment of the settlement is approved.

Other rulings

  • Supreme Court ruling of 30 June 2022. Property transfer tax. Purchase and sale. Condition subsequent. Refund.
    • The court is asked to determine whether or not property transfer tax on transfers for consideration that was paid must be refunded in the case of a condition subsequent explicitly contained in the purchase agreement being met due to a breach on the part of the party obligated to pay the tax, in this case the buyer.
    • The Supreme Court finds that the deed declaring that the condition subsequent has been met, as stipulated in the original deed of sale of the property with deferred payment, by virtue of which the owner of the property recovers the ownership of same, is not subject to and does not trigger the settlement of property transfer tax on transfers for consideration. The property transfer tax must therefore be refunded if the condition subsequent is met, as explicitly provided for in the sale and purchase agreement.
  • Supreme Court ruling of 3 October 2022. General Tax Law (LGT). Entering a constitutionally protected domicile. Consent. Informative document containing the taxpayer’s rights and obligations.
    • The question to be answered by the court is whether providing the taxpayer with an informative document containing the taxpayer’s rights and obligations when an inspection of the business activity is conducted on the premises is sufficient to understand that consent given by the company’s representative is effective and free of defects, when the said document does not inform the taxpayer that he has the right to refuse entry.The informative document that was given to the representative to inform him of the taxpayer’s rights and obligations prior to the tax inspection explicitly states that "the provisions of articles 113 and 142 of the General Tax Law apply in relation to the places to which the inspectors have access” and it goes on to indicate that "when it is necessary to enter the taxpayer’s constitutionally protected domicile, his consent or a court’s authorisation must be obtained (art. 113 and 142 LGT)".
    • Hence, there are only two ways in which a taxpayer's domicile can be lawfully entered and searched: with the express consent of the taxpayer or his legal representative, or (1) with a court order (2). These requirements, regulated in Article 113 of the General Tax Law, in relation to Article 142.2 of the same Law, are intended to safeguard the fundamental right to the privacy of one’s domicile, which is constitutionally recognised in Article 18.2 of the Spanish Constitution. In short, it is up to the Supreme Court to determine whether the taxpayer’s duly informed consent for the inspectors to enter the taxpayer’s domicile was freely given in this case.If it is expressly stated, as was the case in the informative document mentioned above, that the domicile can only be entered with the taxpayer’s consent, barring a court order, it is clear that if such consent is not given the tax inspectors cannot enter, so that merely opposing or even acquiescing would preclude them from entering, since consent, in order to be valid, must be explicit, free and informed. In this case, the legal representative of this and other companies gave his consent and signed documents to that effect.It is irrelevant, of course, as indicated in the appealed judgment, that the legal advisors present at the time were not specialists in tax law.Moreover, there are examples of the legal representative opposing certain actions, such as when he refused to reveal the access codes to the laptop that was found, according to the agreement on the ratification of precautionary measures. Thus, considering the circumstances in this case and the documents signed by the legal representative, the consent given after receiving the information on the taxpayer’s rights and obligations and prior to the inspection must be considered free and informed consent.
  • Binding Query V1359-22 of 14 June 2022. Transfer tax and stamp duty. Acquisition value. Reference value.
    • The petitioner plans to acquire certain property whose acquisition value is lower than the reference value due to the condition of the property, which raises a question regarding the applicable regulations and how the petitioner should proceed.
    • The Tax Directorate reaches the following conclusions:  (1) in the transfer of a property, the taxable amount is the reference value unless the price, consideration or declared value is higher; (2) if the reference value exceeds the maximum sale price and the petitioner believes that the assigned value harms his legitimate interests, he may challenge the self-assessment and request that it be corrected under the terms of article 10 of the consolidated version of the Law on Transfer Tax and Stamp Duty (TRLITPAJD), on the understanding that this does not exonerate him from the obligation to file the corresponding self-assessment for the reference value.