Tax Newletter - September 2014


Article 11 of Royal Decree 1382/1995 which governs senior management employment relationships allows a senior management employment contract to be terminated on the ground of withdrawal by the employer, following the required amount of notice, and in these cases the senior manager will be entitled to the severance pay agreed in his contract and, in the absence of such an agreement, seven days’ salary in cash per year worked, capped at six months’ pay. In the case of a dismissal based on a serious and culpable breach by the senior manager, if the dismissal is held unjustified, the manager will be entitled to the severance agreed in his contract or, if none was agreed, to twenty days’ salary in cash per year worked, capped at twelve months’ pay.

On the basis that this article allows severance terms to be agreed to prevent the seven or twenty days’ salary terms being applied, the courts have been determining that senior managers’ severance pay is not exempt from personal income tax (except in the case of dismissals on objective grounds) because the option to reach an agreement on the amount of severance rules out that there is a minimum mandatory amount of severance that must be paid. This case law arose from the well-known judgment of the Third Chamber (judicial review) of the Supreme Court of December 21, 1995, which in turn refers to another judgment of the same court (but of its Fourth Chamber, i.e. the Labor Chamber).

The Supreme Court itself, however, (Fourth Chamber), in a recent judgment handed down on April 22, 2014 (which we comment on in this bulletin) on an appeal for a definitive ruling on a point of law, revisited article 11 and concluded that it must be interpreted to mean that the seven-day severance, capped at six months (understood also to include the twenty-day severance mentioned above ) is the minimum mandatory severance pay under the labor law and any agreements to the contrary that reduce or eliminate that severance are not allowed. The agreement mentioned in the article can modify that severance pay but only to increase it from this minimum and non-waivable amount.

This judgment (which, as mentioned, is by the Fourth Chamber) has turned the traditional case law on its head and must necessarily affect the judicial review case law on the subject, given that it is labor, rather than tax, law that establishes the severance to be paid in cases of dismissal or removal of senior managers.

I. Judgments

  • 1.1 Corporate income tax. - Preferential application of the rules on acquisitions of treasury stock for its subsequent retirement over the rules on exchange transactions (Supreme Court. Judgment of June 25, 2014)
  • 1.2 Personal income tax. - Senior managers are legally entitled to minimum severance pay for dismissal or removal (Supreme Court. Labor Chamber. Judgment of April 22, 2014)
  • 1.3 Inheritance and gift tax. - Inheritance and gift tax is contrary to the free movement of capital in cases where there is a nonresident element (Court of Justice of the European Union. Judgment of September 3, 2014 in Case C-127/12)
  • 1.4 Inspection proceeding. - There is an administrative res judicata if a prior review was performed which ended with no formal assessment being issued (National Appellate Court. Judgment of May 28, 2014)
  • 1.5 Penalty proceeding. - Option to obtain the 25% reduction in the enforcement of a judgment if the taxpayer states his agreement with the declaration of liability (National Appellate Court. Judgment of April 28, 2014)
  • 1.6 Review proceeding. - The tax authorities can and must review in any administrative phase whether there has been a dual payment and proceed to rectify it (National Appellate Court. Judgment of June 23, 2014)

II. Decisions and rulings

  • 2.1 Corporate income tax. - Clarification of various doubts regarding the DTA regime (Directorate-General of Taxes. Ruling V2212-14 of August 8, 2014)
  • 2.2 Corporate income tax. - The existence of consideration invalidates the nature of a donation as a free gift (Directorate-General of Taxes. Ruling V1503-14 of June 9, 2014)
    2.3 Personal income tax. - The 40% reduction for surrenders of pension plans in the form of a lump sum may be applied only if the payment is a one-time payment (Directorate-General of Taxes. Ruling V1626-14 of June 24, 2014)
  • 2.4 Personal income tax. - In the transfer of a dwelling inherited and not reported for inheritance and gift tax purposes, the acquisition value is the market value on the date of death (Directorate-General of Taxes. Ruling V1522-14 of June 10, 2014)
  • 2.5 Various taxes. - Treatment of participating loans (Directorate-General of Taxes. Ruling V1511-14 of June 9, 2014)
  • 2.6 Inheritance and gift tax. - Kinship by affinity subsists even if the person who gives rise to this relationship dies (Central Economic-Administrative Tribunal. Decision of July 8, 2014)
  • 2.7 Inheritance and gift tax. - In the case of companies with a negative value, the minimum value will be considered to be zero (Directorate-General of Taxes. Ruling V1588-14 of June 20, 2014)
  • 2.8 Collection proceeding. - The late-filing surcharge is not a penalty in nature and can only be avoided in the case of unforeseeable circumstances or force majeure (Central Economic-Administrative Tribunal. Decision of July 17, 2014)
  • 2.9 Collection proceeding. - Where incorrectly paid taxes are used to offset other debts, late-payment interest is calculated from between when the incorrect payment was made and when the offset is ordered (Central Economic-Administrative Tribunal. Decision of July 3, 2014)
  • 2.10 Economic-administrative proceeding.- The non-admission of testimonial and eye-witness evidence and other parties’ statements does not constitute a denial of due process in an economic-administrative proceeding (Central Economic-Administrative Tribunal. Decision of July 17, 2014)
  • 2.11 Enforcement proceeding. - The maximum period for completing proceedings if they have been reverted does not apply to penalty proceedings (Central Economic-Administrative Tribunal. Decision of July 17, 2014)

III. Legislation

  • 3.1 Form 347 for transactions with third parties; and form 180 for “Withholdings from payments in cash and in kind. Income from the leasing of urban properties. Annual summary”
  • 3.2 Single Public Notice Board through the Official State Gazette
  • 3.3 Electronic identification in dealings with authorized entities for the payment of debts
  • 3.4 Form 187 for the information return for shares or units representing the capital or the assets of collective investment undertakings and for the annual summary of withholdings on payments in cash and in kind
  • 3.5 Changes to the standard forms used for guarantees provided by credit institutions and by mutual guarantee societies for the tax authorities
  • 3.6 “Ponferrada 2014” World Road Cycling Championship

IV. Others

  • 4.1 Spain-US tax treaty: technical explanation of the Protocol
  • 4.2 Tax reform bills – main changes compared with prior preliminary bills
  • 4.3 2014 Update to OECD Model Tax Convention


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