Tax Newsletter

Corporate Income Tax (IS)

• TEAC (Spanish Central Economic-Administrative Court) Resolution of 23 March 2022. Corporate Income Tax (IS). Related party transactions; Transfer pricing; Market value of the interest rates paid by the company due to its participation in the group's cash pooling system.
  • The TEAC finds that preferential treatment applied by the taxpayer to credit and debit cash pooling transactions is inadmissible. The system is set up in such a way that both types of transactions should be treated equally. The analysis of the logic and philosophy behind transactions with financial institutions is not transferable to the cash pooling transactions in question here. In this case, the transactions are channeled through the parent company’s cash pooling system. It is clear from a functional analysis that this company acts as a service provider, managing and administering the cash pooling, but not as a credit institution that assumes the consequences of the cash pool deposits and withdrawals. Moreover, the companies that are part of the cash pooling scheme can either deposit or withdraw funds from the cash pool and there is generally no way of knowing in advance what the debit or credit position of each one will be.
• TEAC Resolution of 26 April 2022. Corporate Income Tax (IS). Tax consolidation regime. Tax consolidation scope. Inclusion of the permanent establishments of non-resident entities as dependents in the tax consolidation group.
  • The TEAC must rule on the delimitation of the tax group. In this regard, the actuary included two investees (permanent establishments of non-resident entities in Spain) as members of the tax group, but the Technical Office does not believe they should not be considered as such under article 67 TRLIS. The settlement proposed in the tax assessment had to be modified and a new settlement was proposed once the subsidiaries were eliminated. The tax percentages for the regional territories and the common territory and some of the effective dates for the accrual of interest were also modified.
  • The TEAC's criterion - not reiterated - is based on the fact that although permanent establishments of non-resident enterprises can be included in the scope of dependent entities following the enactment of the Corporate Income Tax Law 27/2014 of 27 November (LIS), this does not mean that the fact that this was not a possibility previously does not violate the principle of freedom of establishment or the principle of non-discrimination. The ex novo regulation introduced by Law 27/2014 which addresses possible new dependent enterprises, which is what a permanent establishment of a non-resident entity is, was not introduced to correct any conflict in our legislation with the principles of the TFEU but rather was something spontaneously introduced by lawmakers. Because it is a regulatory amendment that applies as from the effective date of the new law, it is not anticipated that the new wording of the tax consolidation rules will be applied retroactively.

Personal Income Tax (IRPF)

• Ruling of the Supreme Court of 15 December 2021. Cassation Appeal 7113/2019. Personal Income Tax (IRPF). Work income. Taxes paid in another State. Deductibility.  
  • The question posed to the appeal court in this case is whether the social security contributions paid to the Social Security administration - or their collaborating management entities - in another Member State of the European Union, when they are compulsory for workers, can be considered deductible expenses for personal income tax purposes according to the provisions of article 19 LIRPF.
  • The Supreme Court sets doctrine, finding that the social security contributions paid to the Social Security administration - or their collaborating management entities - in another Member State of the European Union, when they are compulsory for workers, can be considered deductible expenses for personal income tax purposes according to the provisions of article 19 LIRPF.
• Binding Query V0617-22 of 23 March 2022. Personal Income Tax (IRPF). Reduction for home rental. Home in a foreign country.
  • The taxpayer asks whether the reduction for the rental of a home in article 23.2 of the Personal Income Tax Law applies if the rented property is located abroad.
  • In response, the Tax Directorate (DGT) states that the rental of a residential property is one in which, pursuant to the Urban Lease Law (LAU), the leased property is “an inhabitable building whose primary purpose is to satisfy the permanent housing needs of the lessee”. The DGT has established (in consultations V2457-14, V2797-16, among others) that in order for the lessor to apply the reduction, the object of the lease must be to provide the lessee with a permanent place to live. Consequently, the reduction regulated in Article 23.2 of the Personal Income Tax Law (LIRPF) applies to the extent that the facts of the case and the terms of the rental agreement reflect the fact that the property is used as a residence, regardless of whether or not the leased property is located in a foreign country.
• Binding Query V0665-22 of 25 March 2022. Personal Income Tax (IRPF). Cryptocurrencies. Co-ownership. How to document it.
  • A group of people plan to form a syndicate to invest in cryptocurrencies and share the profits or losses on the basis of defined percentages. Because cryptocurrency operators require that anyone who opens an account must be identified on an individual basis and accounts with multiple account holders are not allowed, the returns of each participant cannot be properly documented since the certificates issued by the operator will detail the transactions and the returns, all of which will refer to the sole account holder. Specifically, the taxpayer proposes using a copy of a private contract along with a public deed showing each participant’s stake in the syndicate as proof. The question arises as to how to document the returns actually attributable to each member.
  • The DGT responds to the question in an open manner, stating in its reply that the admissible forms of proof are those regulated in article 299 of the Civil Procedure Act (LEC). Therefore, the forms of evidence proposed in the consultation would be admissible. However, the fact that such documents are, in principle, admissible as evidence does not mean that they automatically constitute proof of participation, since this depends on the evaluation of the evidence which must be carried out in accordance with the aforementioned regulations. Moreover, it will be up to the competent tax authorities to assess the suitability of the evidence provided in each case.
• Binding Query V0708-22 of 1 April 2022. Personal Income Tax (IRPF). Exemptions. Compensation recognized by a French court for physical, mental and moral damages.
  • The taxpayer asks whether a settlement awarded by a French court for physical, mental and moral damages could be considered exempt from personal income tax.
  • The DGT limits itself to a generic analysis of the possible application of the exemption provided for in article 7.d) LIRPF. The question that arises, on the understanding that this is a civil liability case (where the person that causes the damages is obligated to remedy them) is whether the compensation is covered under the first heading of the aforementioned paragraph: compensation as a consequence of civil liability for personal injury (a concept of damages that includes physical, mental and moral damages), in the legally or judicially recognized amount. In the DGT’s opinion, the compensation received would be exempt (according to the criterion described above) insofar as it is limited to personal damages (physical, mental or moral) and the amount matches that recognized under French law or awarded by French judges or courts in the terms indicated with respect to what is understood by judicially recognized amount.
• Binding Query V1035-21 of 21 April 2021. Personal Income Tax (IRPF). Meal vouchers and telework. Exemption. Amount.
  • The association asking the question comprises a series of companies that issue service vouchers, such as meal vouchers, which certain companies provide to their employees as part of their compensation to defray the cost of meals incurred by those employees. The question arises as to whether meal vouchers, provided as in kind compensation to employees who work remotely some of all of the time can be considered tax-exempt and whether the exemption applies to employees who work a continuous workday (no lunch break). Another question arises as to whether the costs of delivering meals to the home, whether invoiced by the catering establishment together with the food, or invoiced separately by the delivery company, are eligible for exemption.
  • If the meal vouchers (provided to remote workers or employees who work an uninterrupted schedule with no lunch break) meet the requirements of Article 45 RIRPF, this would be considered an indirect way of providing a company canteen service, which would therefore be considered exempt in kind compensation, with a limit of €11 per day pursuant to Article 45 of the aforementioned Regulation. The costs incurred to deliver the meals to the workplace or the place designated by the employee on the days when he/or she is working remotely are understood to be included in the exemption, whether those costs are charged by the company providing the meal service on the invoice for the meal or invoiced separately by the company in charge of the meal service, although the total exemption may not exceed the aforementioned limit of €11 per day.

Inheritance and gift tax (ISD)

• Ruling of the Supreme Court of 6 April 2022. Cassation Appeal 2575/2020. Inheritance Tax (ISD). Review of invalid decisions. Grounds for invalidity. Review of the denial of a final and consented request for rectification. Application of autonomous community regulations to residents of third countries.  
  • Considering that the decision against which the request for the legal nullity of Article 217 LGT was directed in this case was a final, unappealable decision; that the denial was based on a manifest lack of legal grounds; and that the denial was contested precisely on the basis of the solid grounds for the application for legal nullity, invoking the grounds in letter a) paragraph 1 of that provision, the Supreme Court finds that the appeal judges should have analyzed the real controversy in this case, that is, whether or not the correction of the self-assessment was admissible, particularly given the fact that this case had clear implications for upholding EU law, which made it incumbent on them to find the most favorable interpretation in order to safeguard the effective and correct application of their decisions.

Wealth Tax

• Binding Query V0878-22 of 25 April 2022. Wealth Tax (IP).Exemption. Tax resident in Spain. Pension Plan in Malta.
  • The tax resident in Spain set up a pension plan with an entity domiciled in Malta which is governed by the rules of that country. Since the pension plan was set up in a Member State of the European Union other than Spain, the taxpayer asks whether it could be eligible for the exemption in article 4.5 of the Wealth Tax Law (LIP), as a pension plan regulated by Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the operation and supervision of retirement pension funds.
  • As regards the exemption of "vested rights" and "economic rights" under a "pension plan" provided for in Article 4.5 a) LIP, the term "pension plan" is not defined in LIP. Consequently, according to Article 12.1 General Tax Law (LGT), its legal meaning must be found in other laws.In order to define what should be understood by the term “pension plans” for the purposes of LIP, one must refer to the second paragraph of Article 1.2 TRLRPFP. If the pension plan meets the requirements of that law, it may be eligible for the exemption provided for in Article 4.5.a) LIP. Otherwise, it will not be tax-exempt since this would imply an analogical application of the rule, which is prohibited under article 14 LGT. In this case, the query refers to a pension plan set up with a company domiciled in Malta and subject to the laws of that country, which means that, in principle, the stated requirements would not be met. Therefore, it will not be eligible for the Wealth Tax exemption, since LIP does not explicitly provide for that possibility, unlike LIRPF, in which several of its provisions expressly refer to the pension plans regulated in Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the operation and supervision of retirement pension funds.