Tax Newletter

January 22

Daniel Tarroja, Tax Associate Director

Latest rulings

Personal Income Tax (IRPF)
- Ruling of the Supreme Court of 15 December 2021. Personal Income Tax (IRPF). Taxable income. Income earned from special employment relationships. Professional athletes. Professional activities. Image rights. Classification of a private contract as a transfer of image rights.
  - In this case, the question posed to the Supreme Court was whether the social security contributions paid in another Member State, when they are compulsory for workers, can be considered deductible expenses for personal income tax purposes according to the provisions of article 19 of the Tax Law.
  - In its ruling, the High Court supports the appellant's argument and establishes that the contributions must be considered deductible expenses for personal income tax purposes according to the provisions of article 19 of the Tax Law. It adds that there is no legal distinction whatsoever that allows for different interpretations depending on whether the contributions are paid into the Spanish Social Security system or similar systems in other countries. Moreover, this interpretation is the one that is most in keeping with the principle of freedom of movement in Article 45 TFEU, as upheld by the CJEU itself in judgments such as the ones handed down on 30 January 2007 (Case C-150/04), or on 28 February 2013 (Case C-544/11).
- Binding Consultation V2513-21 of 7 October 2021. Personal Income Tax (IRPF). Exemption. Reinvestment in primary residence. Period of residency.
  - On 19 June 2018, the petitioner acquires a property through a donation from her parents. On 17 November 2020 she sells the property and on the 23rd of the same month she acquires a new primary residence together with her husband. In July 2021, the couple moves to the United States. The petitioner asks whether the exemption for reinvestment in the primary residence applies to the capital gains obtained from the sale of the property received through a donation if she lived in the property for less than three years from the acquisition date.
  - The tax authority analyses the requirements that must be met in order for the aforementioned exemption to apply and determines that, at the very minimum, the transferred property must have been occupied as the primary residence for three years. Moreover, even if the applicant had resided in the property prior to receiving it as a donation, she did not own the property.
Value-Added Tax (VAT)
- Binding Consultation V2679-21 of 5 November 2021. VAT. Tax treatment. Cryptocurrency. Purchase and sale. Custody. Staking.
  - The petitioner provides the following services related to cryptocurrencies: (1) custody of cryptocurrencies, (2) OTC purchase and sale of digital assets with customers and (3) staking service or yields on deposits held in Smart contracts. The question arises as to whether the services provided by the petitioner are subject to Value Added Tax (VAT) and, if so, whether they are exempt.
  - With regard to the purchase and sale of digital assets, the Tax Directorate analyses the case law of the CJEU and concludes that Bitcoins, cryptocurrencies and other digital coins are currencies and therefore the financial services linked to them are exempt from VAT under the terms of Article 20.1.18.
  - With regard to cryptocurrency staking services, the tax authority states that the safekeeping of cryptocurrencies through a platform not connected to the Internet that provides better security to its customers is a deposit service similar to the rental of a safe deposit box. Therefore, such service is not financial in nature and is subject to and not exempt from VAT.
  - The petitioner will offer a service whereby cryptocurrency holders will be able to take part in staking by signing onto a “smart contract” These smart contracts will allow cryptocurrency investors to engage in staking transactions with other investors in a reliable manner, without the need for a trusted intermediary. Moreover, the fulfilment of contractual promises will be automated using software. As the staking provider, the petitioner will charge a percentage of the return earned by each client. Consequently, the service is subject to and not exempt from VAT.
Corporate Income Tax (IS)
- Ruling of the Supreme Court of 21 December 2021. Corporate Tax. Special regimes. Small company. Computation of net turnover.
  - The object of this cassation appeal is to determine how turnover should be calculated in the case of several different entities that form a group which is owned by a natural personal who is the sole owner of his business and therefore pays personal income tax. It must therefore be decided whether it is possible to apply the tax incentive scheme for small businesses and, insofar as calculating the net turnover of a group of companies is concerned, whether or not the net turnover from the economic activities of the natural person who controls the group should be taken into account.
  - The question is resolved by the Supreme Court, which declares that Article 108(3) of the Consolidated Corporate Tax Law (TRLIS) must be interpreted as excluding from the application of the special regime for small businesses those companies or groups of companies whose net turnover exceeds the maximum threshold set out in the provision (€10 million), when the turnover of the individual owner, together with that of the group that he controls, exceeds that amount.
Other Rulings.
- Ruling of the Court of Justice of the European Union of 27 January 2022. Form 720. Assets and rights held abroad. Reporting obligation. The Court of Justice of the European Union declares that in relation to the Form 720:
  - The Spanish legislature failed to fulfil its obligations under the principle of free movement of capital by providing that failure to comply with, or imperfect or untimely compliance with, the reporting obligation relating to assets and rights held abroad results in the taxation of undeclared income corresponding to the value of those assets as 'unjustified capital gains' without the possibility, in practice, of relying on the statute of limitations.
  - Spain has also infringed the principle of free movement of capital by imposing a proportional fine of 150% of the tax calculated on the amounts corresponding to the value of such assets or rights, which may be cumulated with fixed fines, for failure to comply or for imperfect or late compliance with the obligation to provide information on assets and rights located abroad.
  - Last but not least, as regards the fixed fines, the CJEU states that the free movement of capital is infringed by penalising non-compliance or imperfect or late compliance with the obligation to provide information on assets and rights located abroad with such fines, the amount of which is disproportionate to the penalties provided for similar infringements in a purely domestic context and the total amount of which is not limited.
- Ruling of the Court of Justice of the European Union of 16 December 2021. Free movement of capital. Different treatment. Closed-end real estate funds.
  - A mutual fund management company with its registered office in Germany and a branch office in Italy manages two open-end real estate investment funds, among others. On 4 October 2006, the management company acquired two real estate complexes for professional use, for which it paid the relevant mortgage and land registry taxes to the tax authorities at the time of registration. The management company subsequently learned that the reduction of the mortgage and registration taxes on the acquisition of real estate by or on behalf of closed-end real estate funds had taken effect before the acquisition. In its pre-trial question, the referring court asks whether Articles 43 EC and 56 EC must be interpreted as precluding national legislation which allows only closed-end real estate funds to benefit from the reduction in mortgage and land registry taxes, to the exclusion of open-end funds.
  - The CJEU responds by declaring that Article 56 EC must be interpreted as precluding legislation of a Member State which allows only closed-end real estate funds to benefit from the reduction in mortgage and land registry taxes, to the exclusion of open-end funds, provided that the situation of the two categories of funds are objectively comparable, unless such a difference in treatment is justified by the aim of limiting systemic risks in the real estate market.
- Binding Consultation V2654-21 of 3 November 2021. Form 720. Obligation to file. Tax resident in Spain in 2020 and non-resident in 2021.
  - The petitioner is a natural person who has been a tax resident in Spain since 2020. He filed Form 720 (Foreign Assets and Interests) in relation to some foreign bank accounts. In 2021 he will be a non-resident in Spain for tax purposes and intends to close all the accounts during the course of the year. He intends to become a tax resident in Spain again in 2022 or 2023. The question arises as to when he should report the closure of the aforementioned accounts by filing Form 720.
  - The Tax Directorate replies that if the petitioner is not a tax resident in Spain in financial year 2021, he is not obligated to file Form 720 to report on the closure of the aforementioned accounts. However, if the petitioner establishes his tax residence in Spain in 2022 and 2023, he will have to file Form 720 where he will report on the closure of the bank accounts.