Tax Newsletter

Value Added Tax (VAT):

• Judgment of the CJEU of 5 October 2023. VAT. Supply of goods for consideration. Free supply of a tablet or smartphone in exchange for a new subscription to a magazine. 
  • The CJEU rules in Case C-505/22 which concerns a question referred for a preliminary ruling in the context of a dispute between a publishing house and the Portuguese Tax and Customs Administration. The dispute concerns whether the supply of tablets or smartphones by the publisher as gifts to new subscribers to the magazines marketed by that company is subject to VAT.
  • The CJEU rules that Article 2(1)(a) and the first paragraph of Article 16 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the provision of a subscription gift in return for taking out a monthly subscription to periodicals constitutes a supply that is ancillary to the principal service of supplying periodicals (magazines, articles...) which falls within the concept of “supply of goods for consideration”. In this regard, the supply of tablets or smartphones cannot be regarded as a supply of goods free of charge within the meaning of the first paragraph of Article 16 of the Directive.

Corporation tax (IS):

• Spanish Central Economic-Administrative Court (TEAC) resolution of 25 September 2023. Corporate Tax. Presumption of income. Fictitious liabilities.
  • The issue in dispute in this case mainly concerns the tax treatment of non-existent debts recorded in the accounts.
  • The TEAC partially upholds the claim and, in response to the question at issue, establishes that when faced with the consideration of fictitious liabilities due to non-existent debts recorded in the accounts, it is incumbent upon the taxpayer to prove their origin/reality in order to avoid the presumption of unreported income coming into play. This is consistent with the criterion established in the Supreme Court Judgment of 25 July 2023 (appeal no. 6934/2020). As for the timing of recognition of the income, according to the TEAC’s rationale in resolution 7722/2012 of 21 March 2013, which refers to article 140.4 of Law 43/1995, the taxpayer may use any means of proof allowed by law to demonstrate that the presumed income refers to a specific period other than the one referred to in the tax return, including the company’s duly certified accounting records.

Inheritance and Gift Tax (ISD).

• Judgment of the CJEU of 12 October 2023. Free movement of capital. Articles 63 TFEU to 65 TFEU. Inheritance tax. Capital movements between member states and third countries. Real property located in a third country .
  • The CJEU rules in Case C-670/21, which concerns a reference for a preliminary ruling from the Tax Court of Cologne, Germany. The question at issue in this case is whether German law is contrary to the free movement of capital in that it provides that, where an inheritance comprises real estate which is leased for residential purposes, it must be taxed at 90% of its market value (and not at 100%) provided that it is located in Germany, another member state or a third country signatory to the EEA (European Economic Area) agreement. By contrast, German law excludes real estate located in a third country that is not a signatory to the EEA Agreement from the tax benefit.
  • The CJEU rules that Articles 63 to 65 TFEU must be interpreted as precluding legislation of a Member State which provides that, for the purposes of calculating inheritance tax, developed property forming part of personal assets which is located in a non-Member State other than a State which is party to the Agreement on the European Economic Area of 2 May 1992 and is let for residential purposes is assessed at its full market value, whereas property of the same nature which is located within the national territory, in another Member State or in a State which is party to the Agreement on the European Economic Area is assessed, for the purposes of that calculation, at 90% of its market value.

Other decisions of interest

• Supreme Court ruling of 20 September 2023. Joint and several liability. Voting at a shareholders' meeting. Collaboration in the concealment of assets .
  • The issue in dispute in this cassation appeal revolves around clarifying whether it could be classified as a case of derivative liability for the commission of unlawful acts as stated in Article 42.2.a) of the General Tax Law (LGT), consisting of causing or collaborating, in a way that directly affects the debtor's assets, so as to thwart the collection efforts of the tax administration. Specifically, it questions whether the mere acceptance of dividend distributions approved at the general shareholders' meeting by a shareholder who does not attend the meeting, does not exercise the right to be informed, and does not challenge the corporate resolution, could be interpreted as an attempt to strip the company's assets in order to hinder the tax collection proceedings.
  • The High Court upheld the appeal and determined that the subjective, intentional and tendential liability in article 42.2.a) of the tax law (LGT) requires proof that the conduct consisting of causing or collaborating was actually committed and that it was done with the intention of frustrating the collection of taxes, i.e., it requires both conduct and purpose. Therefore, the law requires an action to be taken, i.e., the passive act of not attending the meeting, not voting or not challenging the corporate resolution is insufficient and merely accepting a distribution of dividends and obtaining a profit does not constitute derivative liability. This is true unless it can be proven that the abstention itself is part of a plan consciously and voluntarily devised with the intention of frustrating the action of the Administration.

• Supreme Court ruling of 12 September 2023. Nullity of the settlement. Failure to assess the taxpayer’s arguments.
  • The key issue in this cassation appeal is to determine the effects of the Administration's failure to evaluate in a timely manner, i.e., by the legal deadline, the arguments and evidence submitted during the preliminary hearing prior to the assessment and during the submission of arguments in response to the assessment, prior to settlement.
  • The High Court upholds the appeal and rules that in this case the assessment made without considering the taxpayer's duly and timely filed prior submissions before issuing a disputed assessment, in which neither the taxpayer’s submissions nor documents were considered, is null and void as a matter of law. Both of these formalities, which are intended to provide the taxpayer with real guarantees, and whose effectiveness must be preserved by the administration in tax proceedings, are absolutely ineffective in the light of the right to due process, interpreted in accordance with the principle of good administration. Under these circumstances, it must be presumed that there is a material defencelessness, and it is therefore incumbent upon the administration to prove that it did not occur.

• Judgment of the Supreme Court of 28 September 2023. General Tax Law (LGT). Limited verification procedure. Article 140.1 LGT.
  • The High Court must rule on the following matters: (1) to clarify whether Article 140.1 LGT must be interpreted as applying only to those tax items about which the Tax Administration has made an explicit declaration or whether, on the contrary, the limits of Article 140.1 LGT extend to any other tax item examined after the necessary documentation has been requested, even if it no adjustment was made to them; and (2) secondly, the Court must determine whether the burden of proof of the existence of new facts that would validate the initiation of the second procedure lies with the administration and whether, in the event of failure to do so, the subsequent reviewing body can make up for that failure.
  • The High Court upholds the appeal in full and in relation to the issues it is asked to rule on, the Supreme Court refers to the case-law doctrine established in its Judgment of 16 October 2020 (appeal 3895/2018). According to that judgment, the interpretation of article 140.1 of the LGT implies that the limitation contained in the referenced article operates not only with respect to the tax items on which the Tax Administration has explicitly ruled, but also to any other tax item that could have been subject to adjustment, even if the decision was made not to do so.