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Tax Bulletin March 2012

03/13/2012

In a tax audit it is not unusual for the taxpayer to provide fresh documents, not produced earlier, to defend itself when it appeals to the economic-administrative tribunal or even in the judicial review proceeding. The Spanish courts and tribunals (mainly the Central Economic-Administrative Tribunal) have been reluctant to accept these fresh documents as evidence.


This conclusion was thrown out, however, in two recent rulings by the Galicia Regional Economic-Administrative Tribunal and by the Galicia High Court (the first, on July 19, 2011 and the second, on February 6, 2012).

In those two cases, the taxpayer had been requested by the tax authorities to support certain expenses it had deducted in calculating its income but it had not provided the required supporting documents, either after receiving the first request, or in the subsequent pre-appellate dossier review allowed when the proposed assessment is issued. The evidence was provided later, when the assessment was appealed.

Both the tribunal and the court ruled in favor of the taxpayer's right of defense and accepted the taxpayer’s right to submit all the documents it believed were needed in its defense when it wished to produce them. They also ruled that the authorities had an obligation to analyze the documents, especially the economic-administrative tribunals, given the scope of their powers and the obligations that the law requires of them.

The issue arising in all of these cases concerns the need for the tax inspectors to have all the pertinent facts to be able to properly assess the taxpayer’s status, while the taxpayer must also be allowed to exercise its right to defend its interests and to supplement its case with any new evidence that it obtains or that arises during the proceeding to help secure the best decision on the dispute.

 
1. JUDGMENTS 
1.1. Corporate income tax. Excess over statutory severance is not deductible (Supreme Court. Judgment of February 9, 2012) 
1.2. Corporate income tax. Tax inspectors can audit statute-barred years to determine existence of merger goodwill being amortized in year audited (Supreme Court. Judgment of January 19, 2012) 
1.3. Personal income tax. Activity need not be remunerated to be able to take tax credit for motherhood (Andalucía High Court. Judgment of February 7, 2011) 
1.4. Personal income tax. Expenses for courses required by the legislation on university professionals meet requirements to be tax exempt as travel, meal and accommodation expenses (Valencia High Court. Judgment of July 15, 2011) 
1.5. VAT. Correcting invoice should not be issued until conclusion of the court proceeding in which VAT liability is being determined (National Appellate Court. Judgment of December 14, 2011) 
1.6. Inheritance and gift tax. Article 54.8 of the Regulations (Aragon fiduciary arrangement) is unlawful because it requires assessing tax on alleged heirs who may not ultimately be designated as such (Supreme Court. Judgment of January 30, 2012) 
1.7. Economic-administrative proceeding. Documents or evidence that had not been produced earlier may be provided in appeals (Galicia High Court. Judgment of February 6, 2012; Galicia Regional Economic-Administrative Tribunal. Decision of July 1, 2011) 

2. DECISIONS AND RULINGS 
2.1. Corporate income tax. Regional Economic-Administrative Tribunals not taking a uniform view on right for pure holding companies to tax relief system for enterprises of reduced size; new decision in which this right is rejected (Andalucía Regional Economic-Administrative Tribunal. Decision of February 3, 2012) 
2.2. Corporate income tax. The right to offset tax loss carryforwards in a merger is not transferred if the absorbing entity should have recognized the losses by reporting an impairment loss for tax purposes on the shares (Directorate-General of Taxes. Ruling V0081-12, of January 19, 2012)
2.3. Corporate income tax. Re-registration of an SA company as an EIG: the SA’s tax losses may be offset at a future date by the EIG (Directorate-General of Taxes. Ruling V0015-12, of January 12, 2012)
2.4. Corporate income tax. In the absence of a tax treaty, a company that is formed under Spanish law is tax resident in Spain (Directorate-General of Taxes. Ruling V0004-12, of January 10, 2012) 
2.5. Value added tax. “Mixed” holding companies are entitled to deduct input VAT according to their deductible proportion (Central Economic-Administrative Tribunal. Decision of January 17, 2012) 
2.6. Inheritance and gift tax. Waiver of preemptive subscription rights is subject to gift tax (Directorate-General of Taxes. Ruling V0056-12, of January 17, 2012) 
2.7. Economic-administrative proceeding. To be able to challenge an administrative decision in the economic-administrative jurisdiction it must be a substantive decision (Central Economic-Administrative Tribunal. Decision of January 31, 2012) 
2.8. Inspection proceeding. Tax authorities must make a full reassessment of the taxpayer’s status; failure to file supplementary returns should not be penalized (National Appellate Court. Judgment of December 12, 2011; Central Economic-Administrative Tribunal. Two Decisions of January 31, 2012) 

3. LEGISLATION 
1.1 Protection measures for low income mortgage debtors  
3.1. “Exemption thresholds” and “statistical thresholds” for 2012 relating to intra-Community trade statistics 
3.2. Annual Tax and Customs Control Plan 

4. OTHERS 
4.1. Cost of potential staff restructuring considered in sale price of business can be recorded as liability by purchaser 

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