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Tax Newsletter July 22

Tax Newsletter

July 22

Daniel Tarroja, Tax Partner
29/07/2022
Tax Newsletter July 22

Value added Tax (VAT)

  • Ruling of the Court of Justice of the European Union of 7 July 2022 (Case C-194/21).VAT. Adjustment of deductions. Impossibility in practice.
    • This request for a preliminary ruling concerns the interpretation of Articles 184 and 185 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax as amended by Council Directive 2010/45/EU of 13 July 2010. The request has been made in proceedings between the Staatssecretaris van Financiën (State Secretary for Finance, Netherlands) and a company concerning the adjustment of a failure to deduct input value added tax (VAT) on the acquisition of building land.
    • The Court finds that Articles 184 and 185 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, must be interpreted as not precluding a taxable person who failed to exercise, before the expiry of the limitation period laid down by national law, the right to deduct value added tax (VAT) relating to the acquisition of goods or services, from being denied the possibility of subsequently making that deduction, by way of an adjustment, at the time when those goods or services are first used for the purposes of taxed transactions, even where no abuse of rights, fraud or loss of tax revenue has been established.

Personal Income Tax (IRPF)

  • Supreme Court ruling of 20 June 2022. Foreign earned income.Personal income tax law (LIRPF). Members of Boards of Directors.
    • The question before the court in this appeal consists of determining the scope of the expression "income earned from work performed in a foreign country” as contained in Article 7.p) LIRPF for the purpose of determining whether it applies to all income from work performed or only to income from work performed under an employment or statutory relationship, based on the employee’s status, and by extrapolation whether it applies to income earned by directors and members of Boards of Directors.
    • Whilst the Supreme Court notes that there is no specific reference in Article 7.p) LIRPF to Article 17, the Court also states that it does in fact refer to Article 17 implicitly, to the article as a whole and not merely to paragraph 1 but to paragraph 2 as well.Some of the situations reflected in the latter obviously refer to income from employment which are included by lawmakers for technical reasons, but the classification of a separate group of situations as earned income does not seem to run contrary to such a classification, which in any case is an explicit legal category.However, the Administration limits the scope of the exemption without any legal justification, embracing a restrictive interpretation that excludes the application of Article 17(2)(e) to the case in question from the outset. In response to the question before the court on appeal, we find that under the circumstances in this case the exemption regulated in Article 7.p) LIRPF can indeed be applied to the income received by directors and members of Boards of Directors.
  • Supreme Court ruling of 20 June 2022. Foreign earned capital gains. Statute of limitations. CJEU case law.
    • The question before the court is whether, in the context of the fundamental freedoms of the Treaty on the Functioning of the EU in particular and without prejudice to others which may be affected, the free movement of capital, interpreted in the light of the case law of the Court of Justice of the European Union and in the light of the principles of legal protection and proportionality, a personal income tax return may be filed without being bound by a statute of limitations when the previously unreported capital gains refer to income earned on property and assets located abroad which have been disclosed as a result of the untimely compliance with the reporting obligation stipulated in Additional Provision 18 of the General Tax Law 58/2003.
    • In response to the question raised on appeal, the Supreme Court finds that a personal income tax return cannot be filed without being bound by a statute of limitations where the previously unreported capital gains refer to property and assets located abroad which have been disclosed on the occasion of the untimely compliance with the reporting obligation stipulated in the 18th Additional Provision of the General Tax Law 58/2003.
  • TEAC (Central Economic-Administrative Court) Resolution of 28 June 2022. Personal income tax. Foreign pension received in Spain. Obligation to file the personal income tax return.
    • The question before the TEAC is whether a taxpayer whose only income is a pension from the Netherlands in the amount of €17,520.00 must file a personal income tax return if the payer of the pension is not obligated to withhold any tax.
    • The TEAC finds that if the taxpayer receives a pension from the Netherlands in consideration for previous employment, other than for services rendered to the Dutch State or to one of its political subdivisions or local Entities, it should be taxed in Spain only (country of residence) as earned income under Article 17 LIRPF, without the Netherlands being entitled to demand the payment of any tax. The court also finds that when the foreign pension received by an individual who resides in Spain comes from a single payer, the limit for determining the obligation to file a tax return is €22,000.00, unless the payer is not obligated to withhold taxes under the provisions of Article 76 RIRPF, in which case the limit would be €11,200.00. Given that the taxpayer’s pension is €17,520, we must conclude that he was obligated to file a tax return for the 2013 tax year.

Corporation Tax (IS)

  • Ruling of the Supreme Court of 16 June 2022. Directive 2002/20/EC. Tax on private or special use of the public domain. Telephony and internet services.
    • This Supreme Court ruling establishes the following jurisprudence in relation to the question on appeal: Directive 2002/20/EC of the European Parliament and of the Council of 7 March 2002 on the authorisation of electronic communications networks and services (“Authorisation Directive”) has been interpreted by the CJEU in relation to companies operating in the mobile telecommunications sector, and the limitations laid out in Articles 12 and 13 on the exercise of taxing powers by Member States do not apply to companies providing fixed telephony and Internet services. As interpreted in the ruling of the CJEU of 27 January 2021, Orange, C-764/18, they do not apply to charges for the private or special use of the local public domain levied on companies operating in the fixed telephony and Internet services sector, whether they are the owners of the networks or infrastructure used or whether they hold the rights to use, access or connect with them.
  • Binding Query V0646-22 of 25 March 2022. Corporate tax. Tax group. Tax losses.
    • The question concerns a tax group whose parent is company X, made up of companies A, B and C, among others. Company A, which manufactures and sells furniture to third parties, has seen its sales decline significantly over the last 10 years. Companies B and C have been engaged in manufacturing and providing services to Company A since its incorporation, the former manufacturing furniture and the latter painting and varnishing it. Given the sharp decline in sales and the heavy losses, the petitioner has undergone an industrial reorganisation. As a result, companies B and C are temporarily inactive, with no production activity until such time as the situation is reversed and the previous turnover is recovered. According to the company asking the question, companies B and C have never become insolvent, and they currently have a positive net worth.
    • The Tax Directorate states that insofar as Article 58 of the Corporate Tax Law (LIS) does not preclude an inactive subsidiary from being part of a group, the inquiring company and all the companies that meet the requirements to be considered subsidiaries must continue to be part of the tax group insofar as the application of the tax consolidation regime is concerned. Moreover, according to Article 26(4) LIS, a company’s ability to offset tax losses is limited if the company has been acquired by a company or group of companies after the tax period in which the tax losses were incurred, provided that it did not previously hold an interest of at least 25%. Those circumstances do not exist in the present case, although if the limitation in Article 26(4) LIS had existed previously, that limitation would continue to apply accordingly, but it is not possible to determine this from the information contained in the consultation letter.