Tax Newsletter

Value added Tax (VAT)

• Ruling of the Supreme Court of 2 June 2022. Cassation Appeal 3441/2020. VAT. Principle of VAT neutrality. Notarial summons.
  • The question raised in the present case is whether, in accordance with the principle of VAT neutrality, and for the purposes of altering the taxable amount where the debts corresponding to the amounts charged in respect of taxable transactions are wholly or partially uncollectible, the condition of seeking recovery of the debt by means of a judicial claim or by means of a notarial summons is also satisfied where the taxable person sends the debtor, by registered letter, notarial documents containing information on the debt and a summons to pay the debt.
  • The Supreme Court ruled against the Administration, establishing that the aforementioned article must be interpreted in the sense that the legal requirement that the taxable person must have requested collection by means of a notarial summons to the debtor is satisfied by any kind of communication to the debtor through a notary. It is to be understood that the demand for compliance with extreme, rigorous formal requirements or the use of solemn formulas contradicts the principle of VAT neutrality, whereby the taxable person - especially in cases other than fraud or tax evasion - should not have to bear the burden of the VAT due to third parties using its own resources.
• Central Economic-Administrative Court (TEAC) Resolution of 18 May 2022. VAT. Accrual. Advance payments.
  • This resolution deals with the provisional settlement and penalty issued as a result of a limited verification made regarding the Value Added Tax for 2015. The resolution agreement stated that the public deed of sale indicated that the purchase price of the undivided half of the properties was retained by the buyer, to meet half of the principal of the mortgage loan affecting the transferred properties, pending redemption. The buyer is subrogated in all its real effectiveness, exonerating the seller from all liability for the credit, assuming all the obligations arranged in the mortgage loan deed, which the seller declares to be fully aware of and accepts.
  • Since we are dealing with an exceptional rule envisaged in the VAT Directive, and therefore of restrictive application, in accordance with the CJEU's doctrine, it is required that, for there to be an advance payment that gives rise to the tax becoming chargeable, it is considered that when there is an assumption of debt prior to the time of the taxable event without it having a discharging effect for the original debtor, there is no collection and, therefore, the rule of advance payments does not apply.

Personal Income Tax (IRPF)

• Ruling of the Supreme Court of 2 June 2022. Cassation Appeal 4993/2020 Burden of proof. Personal income tax. Expenses for trips and for meals and accommodation in restaurants and hotels.
  • The purpose of this action is to determine who bears the burden of proving the actual expenses for trips and for meals and accommodation in restaurants and hotels and other catering establishments, whether it is the employer or the employee, in respect of the exemption relating to the per diems and allowances for travel expenses and normal expenses for meals and accommodation in catering establishments, in relation to determining the gross income from work in the personal income tax base. The question arises as to who is responsible for proving the actual expenses when the recipients also exercise management or administrative functions at the paying company.
  • The Supreme Court upheld the appeal and found the provisional personal income tax assessments and the resolutions in the economic-administrative proceedings to be unlawful because they placed on the taxpayer the burden of proving the actual budget determining those allowances solely on the grounds that he was a director at the paying company, a circumstance which it considered insufficient for the purposes of rejecting the exemption.

Corporation Tax (IS)

• Ruling of the Supreme Court of 6 June 2022. Cassation Appeal 4091/2020. Late payment interest. Deductible expenses. Income tax.
  • The purpose of the appeal is to determine whether or not, for Income Tax purposes, late payment interest, whether it is required in the settlement made in an audit procedure or accrued as a result of the suspension of the execution of the contested administrative act, is considered a tax-deductible expense, given its legal nature, and the scope and limits of such interest.
  • The Supreme Court reconfirms that late payment interest is connected to the exercise of the business activity, as well as correlated with income, and will therefore be deductible. It assimilates suspensive interest to late payment interest as it is also intended to compensate the public administration for the delay in receiving the amount legally due to it, a delay caused in this case by the lodging of claims or appeals, whether administrative or judicial.

Other pronouncements of interest

• Ruling of the CJEU of 5 May 2022. Case C-101/21. EU law. Relationship theory. Employee. Managerial duties.
  • In this case, the appellant had been working as an architect for the company since 2010 under an employment relationship. In 2017, he was elected Chairman of the Board of Directors and signed a contract stating that he was not entitled to remuneration for this position. In a subsequent contract, he stated that he was entitled to a salary as an employee since he was a manager.
  • The Czech High Court referred for a preliminary ruling the question whether the Czech national case-law according to which the manager of a company is not considered to be an employee for the purposes of the payment of salary claims solely on the ground that the manager, although an employee, is also a member of the governing body of the same company.
  • The CJEU opposes the Czech national case-law according to which a person who, under an employment contract, cumulatively performs the duties of a manager and member of the governing body cannot be classified as an employee and therefore cannot benefit from the guarantees of Directive 2008/94/EC in the event of the employer's insolvency and non-payment of wages.
• Ruling of the Supreme Court of 3 May 2022. Cassation Appeal 5101/2020. General Tax Law. Limited verification. Taxpayer rights. Extending the scope. Notification.
  • This Ruling examines whether, in order to guarantee the taxpayer's rights under articles 34.1.ñ) and 137 of the General Tax Law, the Tax Administration may extend the scope of its actions by notifying the taxpayer only prior to the opening of the period for allegations or, on the contrary, whether it is also appropriate and legally valid to extend the scope of the verification at the same time as the opening of the period for allegations.
  • The High Court upheld the appeal lodged by the appellant and established that the Tax Administration could only extend the scope of its limited verification proceedings if it communicated this prior to, and not simultaneously or subsequently to, the opening of the period of time to submit pleadings; the final act of the proceedings by which this extension was agreed was null and void.
• Ruling of the Supreme Court of 17 May 2022. Cassation Appeal 7817/2020. Form 720. Out of time. Time limit. Penalty proceedings.
  • The question of interest to the Court is to determine whether the three-month period provided for in article 209.2 of the General Tax Law for the initiation of penalty proceedings, arising from the commission of a tax offence, applies only to the initiation of penalty proceedings arising from a previous procedure, initiated by means of a declaration or from a data verification, check or inspection procedure; or, on the contrary, it also applies in the case of breach of a formal duty to file a tax return within the time-limit.
  • The Supreme Court upheld the appeal in cassation, stating that the three-month period provided for in article 209.2 of the General Tax Law for the initiation of penalty proceedings is not applicable in the case of late filing of the information declaration on assets and rights located abroad, and this because it is not the result of a prior procedure, but of a failure to comply with a formal duty to file a tax return on time.
• Central Economic-Administrative Court (TEAC) Resolution of 18 May 2022. Information request from the ONIF. Entity not established in Spain. Taxpayer.
  • This resolution deals with the scope of the territorial competence of the National Fraud Investigation Office (ONIF) when issuing a request for information to a non-resident entity that does not carry out any taxable event in Spain as a platform. The Fraud Office of the Spanish Tax Administration Agency's Inspection Department issued a request for information to a foreign entity pursuant to article 93.1 of the General Tax Law. The foreign entity filed the relevant economic-administrative claim against the request and argued that the Fraud Office lacks territorial competence to act directly on it, and that the request entails a violation of the Double Taxation Avoidance Agreement between the Kingdom of Spain and the country of origin of the appellant entity.
  • The TEAC upheld the claim made by the company not established in Spain, concluding that the Spanish tax administration does not have the power to request information outside the territorial scope in which it has the legitimacy to exercise its taxation powers if it is not channelled through the exchange of information with other administrations which are competent to carry out such requests for information.