In recent years, the tax authorities have stepped up inspections of companies to review the personal income tax exemption applied in the calculation of withholdings made from certain severance payments, following the guidelines of the Annual Tax and Customs Control Programs in relation to the monitoring of withholdings on payments in cash and in kind.
Those reviews focus on several points. On the one hand, the inspectors are scrutinizing high severance payments to which the exemption has been applied, where the recipient should be deemed a senior manager because of his position in the company’s organizational chart or his real or actual powers. The inspectors are also reviewing whether, where a senior management or commercial relationship exists, the ordinary employment relationship before the promotion was held in abeyance or terminated.
On the other hand, they are looking closely at cases where the severance payments are not those established in the Workers’ Statute. In these cases, circumstances such as the dismissed person’s age, how the severance is calculated or the high number of dismissals where the company has not implemented a collective layoff procedure, have led the inspectors to consider them “early retirements” to which the exemption might not apply. In this bulletin, we comment on the Murcia High Court judgment of July 12, 2013, precisely disallowing the application of the exemption to the severance paid for a purported early retirement; the Court, as did the inspectors, reclassified a dismissal as a termination by mutual agreement, thus disallowing the right to the exemption.
In any case, it should be remembered that Spanish employment/labor legislation encourages conciliation in order to avoid lawsuits, the result being that in numerous dismissals, severance payments are agreed which differ from the amounts established in the Workers’ Statute, without that meaning that the dismissal was not a unilateral decision by the company. Furthermore, involuntary retirement does not exist, except in absolutely exceptional cases, so the fact that a dismissal takes place at an apparently advanced age does not necessarily mean that it derives from a mutual agreement.
1. Personal income tax.- Periodic payments for early retirement: they do not qualify as severance or multi-year income (Murcia High Court. Judgment of July 12, 2013)
2. VAT.- Input VAT borne is not deductible if it should have been reverse-charged (Court of Justice of the European Union. Judgment of February 6, 2014, case C-424/12)
3. Tax on economic activities.- To apply the exemption from the tax on economic activities tax, group entities with which there is not an obligation to file consolidated financial statements should not be taken into account as the entities under article 42 of the Commercial Code (Cataluña High Court. Judgment of March 6, 2013)
4. Administrative proceeding.- Expiration can be contended for the first time in the judicial review jurisdiction without entailing a departure from procedure (Castilla y Leon High Court. Judgment of December 13, 2013)
5. Administrative proceeding.- The filing by telefax starting on the last day of the filing period but received after midnight is considered late (Castilla y León High Court. Judgment of November 29, 2013)
6. Collection proceeding.- Enforced collection order reversed due to confusing debt deferral agreement (National Appellate Court. Judgment of July 8, 2013)
7. Penalty proceeding.- Collaboration in the issue of false invoices as criterion for aggravation of the infringement or as independent infringement (Balearic Islands High Court. Judgment of May 29, 2013)
II. Decisions and rulings
1. Personal income tax.- Withholding taxes paid in Switzerland under Directive 2003/48/EC are deductible in Spain as such (Directorate-General of Taxes. Ruling V3508-13 of December 3, 2013)
2. Corporate income tax.- Amortization/depreciation of assets whose useful life ends in 2013 or 2014 (Directorate-General of Taxes. Ruling V3642-13 of December 19, 2013)
3. Corporate income tax.- In order for the super-reduced tax rates for maintaining employment to apply, the ordinary working hours set by the company must be treated as the full amount of working hours (Directorate-General of Taxes. Ruling V3570-13 of December 11, 2013)
4. Corporate income tax.- Tax credit for double taxation of dividends: various questions (Directorate-General of Taxes. Ruling V3515-13 of December 3, 2013)
5. Corporate income tax.- Debt write-offs agreed in fiscal year 2013 will not be included in the computation of the limit on tax losses (Directorate-General of Taxes. Ruling V3509-13 of December 3, 2013)
6. Transfer and stamp tax (ITP-AJD).- Until a purchase option is exercised, leased property will not be included in the computation of real estate assets for the purposes of article 108 of the Securities Market Law (Directorate-General of Taxes. Ruling V3633-13 of December 19, 2013)
7. Transfer and stamp tax (ITP-AJD).- The tax authorities are the taxpayer where a unilateral mortgage is created in their favor (Central Economic-Administrative Tribunal. Decision of December 3, 2013. R.G. 947/2013)
1. Works of art: corporate income tax withholding rate of 21% extended for 2014 and VAT rate reduced
2. Model card for registration at the territorial register for the tax on fluorinated greenhouse gases
1. New legislation relating to deferrals and payment by installment of tax withholdings, and to debtors in an insolvency proceeding