Tax Newsletter

Case law:

Value Added Tax (VAT)

• CJEU Judgement of 7 March 2024. VAT Taxable Person. Right of deduction
  • The Court of Justice was seised of case C-341/122 concerning a request for a preliminary ruling regarding interpretation of EU Law brought by the Supreme Court of Cassation, Italy. The matter in question concerns the interpretation of Article 9(1) of the VAT Directive as regards denial of the condition of taxable person and, accordingly, of the right of deduction or refund in respect of input VAT paid by a taxable person whose volume of transactions for VAT purposes over three consecutive years was below the threshold for what might reasonably be expected in view of its assets, in accordance with the criteria established under Italian law, insofar as said taxable person was unable to explain that fact based on the existence of objective circumstances preventing that outcome.
  • The Court of Justice ruled that Article 9(1) of the VAT Directive must be interpreted as meaning that it may not lead to a person being denied the status of taxable person for value added tax (VAT) where that person, during a given tax period, carries out transactions that are subject to VAT and the economic value of which does not reach the threshold prescribed by national legislation, which corresponds to the return that can reasonably be expected from the assets held by that person. In accordance with Article 168 of the VAT Directive, two conditions must be met for a taxable person to enjoy the right of deduction: the interested party must be a ‘taxable person’ within the meaning of the Directive, and the input goods or services in respect of which the right of deduction is claimed must be used by the taxable person to meet needs related with the transactions taxed and be provided by another taxable person. Recognition of a taxable person’s right to deduct input VAT requires, in principle, that there should be a direct and immediate relationship between a specific transaction and one or more transactions resulting in input VAT charges in respect of which the right of deduction of VAT is claimed.

• Spanish Supreme Court Judgement of 21 February 2024. VAT. Charges. Deadline
  • The Spanish Supreme Court has ruled on cassation appeal no. 6245/2022 brought against the judgment of the National High Court concerning the applicability of VAT charges made by the appellant. The matter at issue was the determination of the period within which a taxable person for VAT may charge the tax on to the end customer in a transaction after amendment of the tax base resulting in an increase in the VAT payable, as identified in a spontaneous regularization involving the issue of a new invoice and payment of the total accrued tax due and the pertinent surcharge. In this regard, the Supreme Court was also asked to specify whether application of the one-year deadline established by Article 88.Four of the Spanish VAT Act or the four-year deadline set by Article 89.One should depend on the reason for the rectification of the VAT originally charged and, in particular, whether the fact that the tax basis may have been deliberately set incorrectly in order to conceal a part of the real price of the transaction should be considered a determining factor.
  • The Supreme Court turned down the appeal, establishing a deadline of one year, by way of interpretative criterion, within which a taxable person for VAT purposes may pass on any VAT charge to the end customer of a transaction following a spontaneous VAT regularization in respect of any taxes left previously undeclared in order to conceal a part of the transaction price in a new invoice issued for that purpose with payment in full of the total VAT due and the related surcharge, in accordance with Article 88.Four of the Spanish VAT Act.

Administrative Doctrine:

Corporate Income Tax

• Decision of the Spanish Central Tax Tribunal of February 2024. CIT. Deductibility of remuneration paid. Directors who are also senior management employees. Change of criteria. Link theory.
  • Spain’s Central Tax Tribunal has issued its ruling in claim no. 00/05806/2023 brought against a decision in relation to the settlement of corporate income tax (CIT) for 2015 to 2018. The question in this case was whether remuneration paid by the appellant entity to certain employees were deductible despite being classified by the tax inspectorate as non-deductible because unlawful.
  • The Central Tax Tribunal partially upheld the claim on the grounds that the application of the “link theory” to taxation had been superseded by recent Supreme Court case law, specifically the judgments of 27 June 2023 (in cassation appeal 6442/2021) and 2 November 2023 (in cassation appeal 3940/2022). Accordingly, the Central Tax Tribunal took on board the criteria expressed by the Supreme Court in the aforementioned judgments, insofar as it should be considered that a company director who at the same time provides an actual, effective service to such entity in addition to the discharge of his/her duties as a director can be remunerated for such service, and if so, the remuneration paid should be considered an allowable expense for CIT purposes. However, the Central Tax Tribunal was also at pains to point out that the deductibility of remuneration paid in respect of the discharge of duties inherent in the office of director (i.e. in respect of a commercial relationship) would continue to be governed by its existing criteria, which require ‘strict compliance’ with commercial legislation, and in this regard it is essential that the part of remuneration paid in respect of directorships and the part in respect of executive functions be duly declared.

Value Added Tax (VAT)

• Central Tax Tribunal Decision of 25 January 2024. VAT. Localization rules
  • The Central Tax Tribunal issued its ruling in joined claims nos. 00/09536/2022 and 00-07950-2022 against settlement decisions issued by the Spanish Revenue Service (AEAT in the Spanish acronym) in respect of VAT for fiscal periods 1 to 12 of the 2019 and 2020 tax years. The issue concerned in this case was to determine the place of delivery of advertising and promotional services in relation to the rule of effective use in the territory where the tax applies, in view of the entry into force of Spanish Law 31/2022 of 23 December (General Budget Act), which amended Article 70.Two of the Spanish VAT Act.
  • The Central Tax Tribunal turned down the claims made, in the first place on the ground that the regulatory change took effect upon the entry into force of the Spanish General Budget Act on 1 January 2023, which provides for the amendment of the article establishing the effective use rule. Furthermore, the Tribunal holds that application of the amendment of Article 70.Two of the Spanish VAT Act means market services provided by a Spanish company to its parent located outside Spain should be deemed located within the Spanish VAT jurisdiction, since that is where said services are effectively used and delivered, given that the Spanish affiliate provides marketing services to its foreign parent, which is engaged in the manufacture, marketing and distribution of alcoholic beverages worldwide, including Spain.
• Central Tax Tribunal Decision of 20 February 2024. IVA. Cancellation of sale transaction. Non-receipt of corrective invoice. Duty to rectify the original deduction
  • The Central Tax Tribunal issued its decision in appeal no. 00/0523/2022 brought against the Valencia Regional Tax Tribunal’s decision turning down the economic-administrative claim filed against the provisional settlement of VAT for fiscal period 12 of the 2015 tax year issued by the Special Delegation of the Major Corporate Taxpayers Management Office in Valencia. The matter concerned examination of the lawfulness of the tax settlement made, which reduced the amount of input VAT paid by the entity in fiscal period 12, 2015 in view of the termination of a private agreement entered into in 2008.
  • The Central Tax Tribunal turned down the appeal on the grounds that the transactions taxed are void where a contract is terminated at the decision of the courts. Since the transactions concerned were therefore non-existent, there could be no deduction in respect of input VAT, rendering incorrect the amount of input VAT declared and deducted, which must be rectified. The obligation to rectify these circumstances was found to be independent of the course of action followed by the party that charged the tax. Accordingly, the situation in question differed from others where correction of the tax charge could only be known by the party incurring the same and regularized through the issue of the pertinent corrective invoice, and in which there could be no demand for rectification of the tax charge in the absence of such corrective invoice. Since this was not the case, insofar as the acquirer of the goods was perfectly aware that the transaction had been cancelled and had no effect, regularization of the deduction applied was in order.

Inheritance and Donations Tax:

• Supreme Court Judgment of 19 February 2024. IDT. Accrual
  • The Spanish Supreme Court ruled on cassation appeal no. 5126/2022 brought against the judgment of the Canary Islands Supreme Court of Justice confirming the settlement of Inheritance and Donations Tax (IDT) issued by the Ceded Taxes Office of the Autonomous Community of the Canary Islands. The matter at issue in this case was the determination of the moment at which the IDT accrued when the condition of necessary heir was acquired as a consequence of the recognition of filiation occurred as a result of a firm judgment handed down by the courts after the demise of the progenitor and testator.
  • The Supreme Court found the cassation appeal to be baseless and ruled, when the condition of necessary heir is acquired through the recognition of affiliation in a firm decision of the courts issued after the death of the progenitor or testator, that Inheritance Tax accrues upon the death of said testator and not upon the date at which the judgment establishing filiation becomes firm and final.