Tax Newsletter

Personal Income Tax

• Ruling of the Supreme Court of 12 December 2022. Personal Income Tax (IRPF). Exemption for reinvestment in primary residence. The exemption does not apply on the basis of bare ownership. Three-year residency requirement.
  • In 2002, Ms. Celsa became the bare owner of a home where she lived with her parents, but it was not until 2007, upon her father’s death, that she acquired full ownership. Subsequently, in 2009, she sold the property.
  • The underlying question in this case is whether, for the purpose of applying the reinvestment exemption for the gains obtained on the sale of the property, the three-year tenancy requirement is considered to be met if the taxpayer is the bare owner during that time or whether, on the contrary, full ownership is required.
  • Based on the definition of primary residence contained in the personal income tax law (LIRPF), the Supreme Court considers that the three-year requirement in Article 38 LIRPF to be eligible for the exemption requires full ownership. The court considers that it is precisely the right of ownership that which, once it is transferred, gives rise to a change in the composition of the assets, thus revealing the taxable and exempt capital gains.
• Ruling of the Supreme Court of 12 January 2023. Personal Income Tax (IRPF). Late interest. Taxation

• The Supreme Court has once again ruled on whether the late interest paid by the State Tax Administration Agency (AEAT) on late tax refunds, despite its compensatory nature, constitutes a capital gain which is taxable and not exempt, or whether, conversely, precisely because of its compensatory nature to redress taxes that should never have been paid, it is not subject to Taxation.

• The Supreme Court finds that that late interest is taxable and not exempt as part of the taxpayer's general income. This interpretation is based on the court’s position that all taxpayer earned income, capital gains and losses and other income is taxable. Late interest, as residual income, is part of capital gains and part of the general income which is not disclosed on the occasion of the transfer of assets.

• Finally, this Ruling, which is not without controversy, has been the subject of individual opinions upholding the criterion expressed in the Supreme Court Ruling of 3 December 2020 (appeal 7763/2019).

• Ruling of the High Court of Justice of Madrid of 26 October 2022. Corporate Tax. Personal Income Tax (IRPF). Related companies. Content Creators.

• This Resolution stems from a tax inspection, subsequently upheld by an economic-administrative court, as a result of which certain adjustments were made to a company’s tax returns due to the fact that the related party transactions between the company and its partner and administrator did not comply with the arm’s length principle, considering that over 75% of the company’s income is derived from professional activities and that it does not have adequate material and human resources other than the partner himself, classifying the services as highly personal.
• The Court finds it proven and accredited that the company, in addition to lacking the human and material resources needed to render the services on its own, it also did not provide any added value to the process of obtaining the income. Consequently, it finds that the company is being used as a way to avoid progressively higher personal income tax rates as opposed to corporate tax rates. Finally, it finds that the method used by the State Tax Administration Agency (AEAT) to assess the related-party transaction is in accordance with the Law.

• Spanish Central Economic-Administrative Court (TEAC) resolution of 15 September 2022. Personal Income Tax (IRPF). Tax options. Capital gains.

• In this case, the taxpayer transfers one-half of an indivisible property acquired in 1987 for a global sale price of €370,000 (one-half per spouse). As the property was acquired prior to 31/12/1994 for less than €400,000 euros and was not used for business purposes, the ninth transitional provision of LIRPF would apply.
• The taxpayer did not apply this provision on the tax return. When it was subsequently applied the AEAT rejected it, arguing that it was not a right but rather a tax option.
• However, the TEAC rejects the optional nature of the provision in question, arguing that these are the rules used to determine the capital gains on sales of assets not used for business activities acquired prior to the aforementioned date. Therefore, rectification is possible as long as the statute of limitations has not expired.

• Binding Query of the Tax Directorate (DGT) V2440-22 of 25 November 2022. Personal Income Tax (IRPF). Double taxation. Telework. Non-resident.

• The petitioner, a Spanish resident in Portugal in 2019, worked for a Portuguese company until April 2020. After that, he is hired by a Spanish company to work in Spain but continues to work remotely and reside in Portugal in a rented property until September 2020. He owns a property in Spain that is rented to a third party and plans to obtain a tax residence document in Portugal.
• His question concerns the taxation of income earned in 2020.
• On the one hand, the Tax Directorate (DGT) indicates that the income earned up to April 2020 whilst working for a Portuguese company and residing in that country, will only be taxed in Portugal. On the other hand, from April onwards, he will continue to be taxed in Portugal as long as he is considered a tax resident in Portugal and continues to telework from there. Finally, from September onwards, taxation will be shared between Portugal, as the State of residence, and Spain, as the State where the work is carried out.

Corporate Tax

• Spanish Central Economic-Administrative Court (TEAC) resolution of 19 December 2022. Corporate Tax. Powers of verification of management bodies with regard to enterprises subject to special tax regimes.

• The Regional Tax Management Office of the Castilla y León Special Delegation of the State Tax Administration Agency (hereinafter, AEAT), following a limited verification process, notified the claimant of a provisional settlement agreement for the Corporate Tax covering the years 2007 to 2009. The AEAT corrected the tax rate applied by the enterprise on the understanding that it was not eligible for the tax benefits available to small companies according to the provisions of Chapter XII, Title VII of the Spanish Corporate Tax Act (TRLIS).
• The TEAC refers to its previous ruling of 4 October 2022 (RG 5963/21) in which it accepted the opinion of the Supreme Court in its ruling dated 23 March 2021 (appeal 3688/2019). In those decisions, it was established that according to a grammatical and systematic interpretation of Article 141.e) General Tax Law (LGT), the actions that must be taken to verify that the requirements for the application of special tax regimes are met are inspection actions, and they must necessarily be carried out by the competent bodies through the inspection procedure. Applying this criterion to the present case, and considering that the AEAT has adjusted a central concept of the special regime (the tax rate), the TEAC finds a lack of competence on the part of the administrative body that issued the disputed settlement, thus upholding the claimant's arguments.

Value Added Tax

• Ruling of the Supreme Court of 16 November 2022. VAT. Accrual. Payments to bankruptcy administrators.

• The question before the court on appeal consists of determining whether the accrual of Value Added Tax for the services rendered by the bankruptcy administrators occurs at the end of each phase of the bankruptcy proceedings or whether, on the contrary, it takes place at the end of the proceedings, on the understanding that the bankruptcy administrator provides his services continuously and consistently throughout the bankruptcy proceedings, regardless of the number of phases, providing a single service.
• The Supreme Court refers to its recent ruling of 14 November 2022 (appeal 1874/2021) and responds to the question raised here by indicating that the VAT for the services rendered by bankruptcy administrators accrues at the end of each phase of the bankruptcy proceedings.

• Ruling of the Supreme Court of 20 December 2022. VAT. Deduction of input VAT. Legitimacy.
  • The appellant owned a plot of land which was expropriated by Madrid’s City Council. The advisory services provided by another entity to the appellant during the expropriation process and the appeal lodged against the agreement on the determination of the fair price were documented in an invoice dated 30 September 2015. The appellant deducted the VAT paid on price of those services, which gave rise to a limited verification which concluded with a provisional VAT assessment for September 2015. The right to deduct the VAT paid on that invoice was rejected as it concerned the transfer of a plot of land classified as public land and was an exempt transaction. The question at the centre of the appeal for the formation of case-law consists of determining whether the deduction of VAT paid by a commercial enterprise on the acquisition of goods or services in the context of a non-taxable or taxable but exempt transaction is admissible when such goods or services result in an economic benefit that is generally favourable to the business.
  • The High Court finds that the deduction of the input tax paid in this case is permissible. In particular, the deduction of the VAT paid for the consultancy services provided in expropriation proceedings with the aim of obtaining a higher fair price than that initially recognised by the Administration is valid in this case, considering the nature of the expropriated property and its direct relationship to the company's business activities. Consequently, there is a right to deduct the input VAT where the good supplied or the service received is related to or represents a general benefit for the taxable person, even if the activity to which it relates is exempt or non-taxable, provided that in addition to the general benefit, unquestionable in this case, the transactions of the taxpayer claiming the deduction is engaged, in the context of its economic activity, are taxable transactions, which in this case is not disputed.
• Spanish Central Economic-Administrative Court (TEAC) resolution of 13 December 2022. Collection procedure. Declaration of joint and several liability under Article 42.2 a) of the General Tax Law (LGT). Interruption of the statute of limitations on the Administration's right to demand payment of debts from those responsible for them. Change of criteria.
  • In this case, the event which is the basis of the demand for liability occurred on 19/02/2009, and the agreement to initiate the process was notified to the responsible party on 11/03/2021. The Administration considers that several collection milestones have occurred at the primary debtor's headquarters since 19/02/2009 that have had the effect of interrupting or suspending the statute of limitations on the right to demand payment from the primary debtor and the responsible party.
  • The TEAC changes its criteria based on the recent Supreme Court ruling of 14 October 2022 (appeal 6321/2020), establishing that the calculation of the deadline for declaring liability starts when the events giving rise to the liability take place. In this case, the events took place on 19/02/2009. Therefore, having notified the commencement of proceedings on 11/03/2021, the statute of limitations on the Administration's right to demand payment from the liable party had expired.