Publications

Corporate income tax

Even though the existence of a valid economic reason has been accepted for several successive interrelated restructuring transactions, the absence of that reason may be found in one of them

Central Economic-Administrative Tribunal. Decision of October 8, 2019

Several transactions were performed as part of a reorganization (mergers, spin-offs, share contributions and exchanges), all for the common aim of simplifying a future transfer upon death (mortis causa) of the family business, by enhancing its organization and management. The tax authorities accepted that these reasons were valid and accepted that the neutrality regime could be claimed generally.

They questioned, however, that the neutrality regime could be claimed for a few capital increases performed through nonmonetary contributions of shares, in that they considered that the reason for those transactions might not be the simplification described above, instead the distribution of commonly owned assets with zero tax cost.

TEAC concluded that the necessary appraisal of each reorganization by reference to all the circumstances surrounding it, in other words, within its context, does not mean that each transaction taken individually cannot have its own profile and aims. So, even though any of these transactions may have been performed as a result of a broader restructuring with a valid economic reason for the restructuring as a whole, it may be found that one specific transaction does not have a valid economic reason.

Corporate income tax

Penalty regime for breach of reporting obligations for controlled transactions cannot be applied to transactions before the regulations implementing these obligations

Central Economic-Administrative Tribunal. Decision of September 10, 2019

The Revised Corporate Income Tax Law approved by Legislative Royal Decree 4/2004 of March 5, 2004 (similarly to the current law on that tax) contained a penalty regime for a breach of the reporting obligations for controlled transactions. These obligations, however, only became applicable in February 19, 2009.

For this reason, TEAC ruled to void a penalty imposed for breach of these obligations in relation to fiscal year 2008, in that the infringement cannot be considered to exist where an obligation has been breached that was enforceable when the controlled transactions took place. In short, that penalty regime is not valid retroactively, instead only in relation to reporting obligations for transactions performed on or after February 19, 2009. For earlier transactions the general provisions on tax infringements and penalties apply.

TEAC also voided the penalty imposed in relation to fiscal year 2009, because the taxable person had performed the reporting obligation, even though the pricing inferable from that report was different from the pricing that the tax authorities considered applicable.

VAT

Exclusivity clause in the distribution of insurance is a supply of services subject to and not exempt from VAT

Central Economic-Administrative Tribunal. Decision of October 15, 2019

An insurance distribution agreement between a banking group and an insurance group contained an exclusivity clause under which the banking group agreed not to sell at its offices any life insurance policies from companies outside the insurance group. The insurance group was to pay the price for this exclusive arrangement in a number of installments. The first was to take place when a number of agreed conditions were met.

TEAC took the view that, because the exclusivity clause has its own specific price separate from the commission that would be payable for the distribution of insurance policies, it is a supply of services subject to and not exempt from VAT. The tribunal rejected the argument that the exclusivity arrangement could itself be an insurance contract or that it entailed mediation on its own behalf in the supply of insurance services, because no obligation to find new customers for the insurance company was acquired, only the obligation not to sell the insurance policies of other companies. And it did not appear either to be able to be classified as an ancillary service to those described above, for the same reasons.

VAT is considered to become chargeable in full (in other words, on the whole of the price) when the conditions triggering the obligation to make the first payment of the agreed price are considered met. According to the tribunal, this interpretation may be inferred from the CJEU's judgment of November 29, 2018 in case C-548/17.

Limited audit procedure

For the purposes of a limited audit a general request for all movements in the taxpayer’s bank account is not valid

Catalan Regional Economic-Administrative Tribunal. Decision of September 12, 2019

In relation to a limited audit of personal income tax, the tax authorities made a general request for information to know every movement in all the taxpayer’s accounts. The aim was to ascertain whether the taxpayer had obtained unreported income.

The TEAR for Catalonia rendered this request for information void on the basis of article 136.3 of the General Taxation Law. According to the tribunal, it may be concluded from the wording of this article that a specific request may be made for financial documents to evidence certain transactions, but not a general request for all bank account movements not related to financial transactions.

Audit procedure

Taxpayer's failure to appear in the procedure does not justify attributing a delay to the taxpayer for the whole period of nonappearance

Central Economic-Administrative Tribunal. Decision of November 12, 2019

After several unsuccessful attempts at notification, the tax authorities considered an audit had commenced on publication of the notice in the Official State Gazette. Because the taxpayer failed to reply to the requests made throughout the procedure, the tax authorities had to request the necessary information and documents from third parties. Additionally, since the taxpayer did not appear at any point in the procedure, the tax auditors attributed a delay to the taxpayer for the whole length of time taken by the procedure.

TEAC concluded that nonappearance alone is not a ground for a permanent delay attributable to the taxpayer for the whole length of the audit procedure, instead evidence must be provided, in all cases, of the reason why that nonappearance delayed, obstructed or prolonged the audit work. In other words, the tax audit report must contain an explanation of the requests for information that ultimately could not be obtained by other means and the assessment decision must provide reasoning for the period to be computed for the nonappearance, for which general and overall information is not allowable.

Collection procedure

TEAC looks at joint and several liability for concealing or transferring the principal debtor’s property or rights

Central Economic-Administrative Tribunal. Decision of November 26, 2019

TEAC examined in this decision the joint and several liability system in article 42.2.a) of the General Taxation Law, which is the system applicable to anyone who causes or assists with concealing or transferring the principal debtor’s assets or rights for the purpose of preventing the tax authorities from seeking payment; and concluded as follows:

1. This type of joint and several liability requires satisfaction of the following requirements: (i) existence of an outstanding debt, (ii) concealment of the principal debtor’s property or rights so as to evade attachment, (iii) an act or omission by the allegedly liable person consisting of causing or assisting with hiding; and (iv) the allegedly liable person must have acted knowingly.
2. This joint and several liability does not take the form of a penalty, because it is regarded as security for the tax debt.
3. The steps to conceal or transfer the debtor’s property may consist of one or more legal acts or transactions. These legal transactions may be carried out simultaneously or successively, and the process as a whole must be examined along with the relationships among the acting parties.
4. It is not necessary for the liable person to have acted formally at all stages of the process, although the tax authorities must provide evidence that the person knew or should have known that their conduct could result in a loss to public funds. Evidence of this knowledge may be provided in the form of prima facie proof and presumptions.
5. The property originally able to be attached may change throughout the concealment process, in that the concealment occurs also in the transfer of the ownership instruments representing the property that had been removed earlier from the principal debtor’s assets.

Collection procedure

An order initiating enforced collection proceedings rendered and notified before the decision on the request for a stay is unjustified

Central Economic-Administrative Tribunal. Decision of October 22, 2019

A taxpayer filed a request for a stay with the competent regional economic-administrative tribunal (TEAR) when the debt had already entered the enforcement period. The tax authorities served an order initiating enforced collection proceedings before the TEAR had rendered a decision on the request for a stay of the assessment. That request for a stay was later denied.

TEAC, under the interpretation established by the Supreme Court in a judgment rendered on February 27, 2018, ruled to set aside that order initiating enforced collection proceedings, in that the filing in the economic-administrative jurisdiction of a petition for a stay of the tax debt, even if this is done after an order initiating enforced collection proceedings has been issued, prevents it from moving forward and being enforceable, thereby placing a condition on its notification until the reviewing body renders a decision on the filed request for a stay.