Tax Newsletter
May 24
Case Law
Wealth Tax
- Supreme Court Judgment of 15 April 2024. Wealth Tax. Competence for tax settlement
- The Supreme Court decided the appeal in cassation brought by the Regional Government of Andalusia in connection with the settlement of Wealth Tax for the tax years 2015 and 2016. In this case, the Court was required to determine whether the competence of a given Autonomous Community to settle Wealth Tax depends solely on the proper identification of the taxpayer's link with the region (i.e. the taxpayer's principal residence) or whether the tax residence must first be established by means of the verification procedure provided in Articles 148 et seq. of Spanish Royal Decreto1065/2007 approving the General Tax Inspection Procedure Regulation (RGAT in the Spanish acronym).
- The Supreme Court upheld the appeal, finding that the competence of an Autonomous Community to settle Wealth Tax depends on the proper identification of the link (i.e.the taxpayer's principal residence), and that prior verification of the tax address applying the RGAT verification procedure is not required.
- Supreme Court Ruling of 30 April 2024. Non-Resident Income Tax. Unsupported capital gain.
- The Supreme Court ruled on the appeal in cassation brought in connection with the Non-Resident Income Tax Settlement for fiscal 2013 due to the voluntary filing (i.e. filing without a prior demand) of form 720 for the declaration of foreign assets. According to the Decision admitting the cassation appeal to process, the Supreme Court consider it necessary to rule on the following issues: 1) determination as to whether the rule for the imputation of unsupported capital gains on foreign assets established in Article 39,2 of the Spanish Personal Income Tax Act has maximum retroactive effect in breach of the constitutional principles of legitimate trust and legal certainty. 2) decision as to whether application of the aforesaid rule without any prescription period could impinge upon the fundamental freedoms enshrined in the Treaty on the Functioning of the European Union, in particular as regards the free movement of capital, interpreted in the light of the EUCJ case law and in accordance with the principles of proportionality and legal certainty. 3) conclusion as to whether the rule in question (article 39.2 of the Spanish Personal Income Tax Act) could be in breach of the constitutional principles of economic capacity and no confiscatory taxation, insofar as said rule taxes assets progressively as income based solely on the location of the assets and rights regardless of the timing of the capital gains obtained.
- The Supreme Court admitted the appeal in cassation and decided the questions raised in light of the doctrine established in its judgment of 12 July 2022. Based on the criteria established in the Supreme Court Judgment of 12 July 2022, the Court has reiterated that it is not lawful to refuse an application for corrective adjustment of a Personal Income Tax self-assessment on the assumption that no prescription period applies to capital gains declared per article 39,2 of the Spanish Personal Income Tax Act as a result of voluntary filing form 720. In this regard, the Supreme Court considers that the assumption made by the Administration as grounds to refuse the application for corrective self-assessment rectification is tantamount to establishing the non-prescription of the right of regularisation, which is not permitted in accordance with CJEU case law as being in breach of the right to free movement of capital and the legal principles of legal certainty and proportionality. With regard to the second issue raised, the Supreme Court echoes the doctrine established by the CJEU of 27 January 2022, which underscored that article 39.2 LIRPF, which established the assumption that the corrective adjustment of capital gains was not subject to any prescription, was in breach of the free movement of capital.
- Binding Consultation V0140-24 of 16 February 2024. VAT. Taxability. Tax rate.
- The consulting party engages in the craft manufacture and sale of beeswax candles and essential oils. The consultation raised with Spain's Directorate General (DGT) of Taxation concerns taxability and the tax rate applicable to sales of such craft products for VAT purposes.
- The DGT responded to the consultation by stating, based on these circumstances, that the consulting party fits the definition for consideration as a sole trader or professional, insofar as she/he organizes and utilizes material and human factors of production on her/his own behalf in order to produce and distribute goods and/or services. Hence, the goods and services supplied in the course of the business or professional activity within the Tax Jurisdiction are subject to VAT. On the matter of the tax rate applicable to sales of the products, the DGT concludes, the absence of other evidence, that neither the beeswax candles nor the essential oils marketed by the consulting party are not destined for use as human or animal foodstuffs and, therefore, the general rate of 21% applies.
- Binding Consultation V141-24 of 16 February 2024. VAT. Deductions.
- The consulting party is a trader who is a member of an Irrigation Association, which intends to make a series of investments in pipelines, meters and in shared reservoir belonging to all members of the association. The issue raised with the DGT in this case concerns whether the payments made by the consulting party to finance investments made by the Irrigation Association constitute deductible expenses for VAT purposes, pursuant to the CJEU judgment of 21 April 2005 issued in case C-25/03 (EH).
- The response of the DGT to the consultation was negative, insofar as the CJEU case law establishes the criterion that the members of owners' associations will be accorded the status of entrepreneur or professional where they do not, per se, enjoy such status in order to safeguard the principle of VAT neutrality. However, this criterion does not apply in the present case, because Irrigation Associations are defined in themselves as entrepreneurs or professionals, although the operations of such Associations are not subject to VAT per article 7.11 of the Spanish Value Added Tax Act. The previous CJEU doctrine was based on the assumption that the owners' associations were not entrepreneurs or professionals. As Irrigation Associations do enjoy that status, however, the doctrine applicable to other owners' associations is not transferable to them. This ruling is not in breach of the principle of neutrality, insofar as the case of non-deductibility of the expenses for VAT purposes is supported by the fact that the Irrigation Association is not subject to VAT.
- Binding Consultation V0063-24 of 15 February 2024. PIT, Work-related earnings
- The consulting party's employment relations with a financial institution were terminated as part of a collective redundancy procedure. The redundancy agreements included an obligation on the part of the employer to finance health insurance for the employees made redundant. The consultation raised in this case concerns the application of the exemption provided for in Article 42.3.c) of the Spanish Personal Income Tax Act to the health insurance premiums.
- The DGT ruled, pursuant to Article 42.3.c) of the Spanish Personal Income Tax Act, that the premiums paid by the financial institution to the insurer in respect of the healthcare policy contracted, in which the consulting party and her/his spouse and/or descendants appear as the insured parties, will not be treated as income earned by the employee below the ceiling expressly provided in the Personal Income Tax Act. Any premiums paid above said ceiling will be treated as in-kind income earned by the employee and will be measured at cost for the payer, including any taxes incurred on the transaction. Meanwhile, neither the exemption provided for in Article 7 e) of the Spanish PIT Act nor the reduction provided for in Article 18.2 of said Act will apply.
- Binding consultation V3189-17 of 13 December 2017. Personal Income Tax. Minimum child allowance.
- The consulting party has one child born in Spain. In the year when his son was born, the consulting party moved to Poland with the child and his mother, who was his partner. The couple subsequently separated and the parents signed an agreement whereby the consulting party would pay a monthly sum by way of child maintenance while his son continued to live with his mother. After the separation, the consulting party returned to Spain. The consultation submitted to the DGT concerned the possibility of applying the minimum child allowance provided for in Article 58 of the Spanish Personal Income Tax Act, taking into account that the consulting party's is not resident in Spain.
- The DGT responded to the matter raised, recalling that cohabitation has been treated as constituting a relationship of financial dependence since 1 January 2015. Hence, the consulting party is entitled to apply the minimum child allowance provided that the child actually lived with his/her father in Spain in the tax year in question or was financially dependent on him, even if he did not actually live with him in Spain.