Publications

Corporate income tax

Accelerated amortization is an option and cannot be claimed if not elected in the tax return

National Appellate Court. Judgment of September 20, 2019

In this judgment the National Appellate Court discussed whether or not the benefit of accelerated amortization for companies of a reduced size is a tax option.

It came to the conclusion that for reasons of legal certainty, claiming this benefit is a tax option. Therefore, if it is not elected in the self-assessment return to be filed in the voluntary period, this benefit cannot be elected after that period has ended.

 

Corporate income tax

The ‘relationship theory’ (teoría del vínculo) does not apply where, although an employment relationship coexists with a contract for services, the characteristics of working for another and dependency defining an ordinary employment relationship are present

Madrid High Court. Judgment of July 11, 2019

In a tax audit, the tax authorities took the view that the deduction in respect of personnel expenses of amounts paid to a worker with a senior management contract who was simultaneously chief executive officer was unjustified, under the “relationship theory” which states that in these cases the contract for services absorbs the employment relationship.

Against this, the court concluded that the “relationship theory” does not automatically apply, because it has to be examined whether the worker actually carries out the tasks of a director.

In the examined case, the worker was director of a sole-shareholder company and its only shareholder was another group company. Moreover, the worker reported to the chairperson of the company who reported to the parent company’s board of directors. It was also determined that the worker had very limited functions and no real decision-making power.

This shows, according to the court, that in this case the characteristics of dependency and working for another defining a worker with an ordinary employment relationship were present. Therefore, the “relationship theory” does not apply here and deduction of the personnel expense cannot be denied.

 

Corporate income tax

Tax neutrality regime cannot be denied by reason of a breach of procedural requirements alone

National Appellate Court. Judgment of June 10, 2019

Following a merger for which the tax neutrality regime had been claimed, it was determined that the regime had not been expressly elected in either the merger plan, or the other transaction documents. The relevant notification to the tax authorities of the intention to elect this regime had not been made either. The examined merger was performed when the Revised Corporate Income Tax Law was in force (before periods that commenced in 2015), in which these two requirements had to be met to claim the tax neutrality regime.

The National Appellate Court held that the regime could not be denied in the examined case because, in its opinion, the regime could not be made subject to procedural requirements; ruling otherwise, said the court, would run counter to European directives. This does not mean that a penalty cannot be imposed for failure to meet procedural requirements.

 

Tax on increase in urban land value

Supreme Court confirms option to apply for damages to the legislating state in relation to the tax on increase of urban land value

Supreme Court. Judgment of November 21, 2019

The Supreme Court confirmed in this judgment the option to claim financial liability from the legislating state as a mechanism for recovering amounts incorrectly paid in respect of the tax on increase in urban land value, if the necessary requirements for initiating this procedure are met.

It had suggested this in its earlier judgment rendered on October 3, 2019 (discussed in our November 2019 Tax Newsletter), but it did not uphold the lodged appeal then because it considered that the absence of an increase in value of the land had not been evidenced; whereas in this case it had.

 

Real estate tax

The concession holder for a parking lot is not the taxable person for real estate tax purposes if it has licensed its use to third parties

National Appellate Court. Judgment of October 29, 2019

The holder of an administrative concession for a building is the cadastral holder in relation to the building, which makes them the taxable person for real estate tax purposes.

The National Appellate Court reviewed the case of a company that held an administrative concession for a parking lot, but had licensed the right to use the parking spaces to a group of users. The court concluded that, since the parking spaces under the concession qualify as inalienable property in the public domain (bien demanial), the fact of having licensed the right to use them to third parties means that the entity can no longer be considered the cadastral holder of the parking lot, or therefore, taxable person for real estate purposes.

 

Administrative procedure

Liability arising from transfers of undertakings is not joint and several if it can be inferred from contractual documents that the tax debt must be assigned to specific assets attributed to a single entity

National Appellate Court. Judgment of October 23, 2019

The National Appellate Court examined a spin-off by a company involving the transfer of all its assets and liabilities to two companies. One of the companies received a real estate asset, whereas the other assets and liabilities of the company performing the spin-off were allocated to the other company.

Following an audit on the company performing the spin-off, it was concluded that the spin-off could not benefit from the tax neutrality regime, and therefore tax was claimed from the company performing the spin-off in respect of the implicit gains in the transferred assets. After the relevant assessment had been issued, liability for the whole debt shifted (as a result of a transfer of undertakings) to one of the beneficiary companies of the spin-off. The debt was for a higher amount than the net value of the assets received by that company in the spin-off. The tax auditors argued that the rule determines joint and several liability, which was validation for the shift of liability being done in that way.

Against this, the National Appellate Court concluded as follows:

1. There cannot be joint and several liability where the spin-off plan clearly identifies which company actually holds the tax debt for which liability has shifted, as occurred in this case.
2. The tax auditors should have made two assessments for shifted liability: one for the gain generated in respect of assignment of the building to one of the beneficiary companies and another for the gain on the other assets, allocated to the second company. Accordingly, each transferee is liable for the tax debt relating to them according to the assets received in the spin-off.

 

Transfer and stamp tax

Sale of gold by private parties to business owners is subject to transfer tax

Supreme Court. Judgment of December 11, 2019

It was examined whether a transfer of gold by private parties to business owners was subject to VAT or transfer tax as a transfer for consideration.

The Supreme Court revised its case law on this subject and concluded that where the transferor is a private party the transfer is subject to transfer tax as a transfer for consideration. According to the court, transactions of this type must be examined from the transferor’s standpoint and the transfer and stamp tax legislation only lifts this tax charge where the transferor is a business owner or where the transfer is subject to VAT. This conclusion remains unchanged if the taxable person for transfer tax purposes is the transferee and this transferee is a trader acting as such.

An important feature of this case is that, before rendering a decision, the Supreme Court submitted a reference for a preliminary ruling to the Court of Justice of the European Union as to whether the fact of charging transfer tax on these transactions could affect the VAT neutrality principle. The Court of Justice, in a judgment rendered on June 12, 2019 on case C-185/18, concluded that the neutrality principle was not affected.

This judicial interpretation contradicts the interpretation of the Central Economic-Administrative Tribunal (TEAC) in a decision rendered on October 20, 2016, for a ruling on a point of law.

 

Tax procedures

The data verification procedure is null and void where a limited audit is required

Supreme Court. Judgment of November 28, 2019

In the examined case a data verification procedure had been conducted in relation to a personal income tax exemption claimed for reinvestment in the taxpayer’s principal residence, which resulted in the tax authorities issuing an assessment. The assessment was set aside by the Regional Economic-Administrative Tribunal (TEAR) for the Canary Islands because it was considered that the tax authorities should have used a limited audit procedure. A new assessment was issued as a result. This second assessment was issued, however, after more than four years had passed from the date when the tax should have been reported.

The Supreme Court confirmed the interpretation established in its judgment on July 2, 2018 and concluded that the use of a data verification procedure when the appropriate course of action would have been to initiate a limited audit procedure renders the procedure null and void by operation of law. Therefore the work performed in the data verification procedure rendered null and void does not toll the statute of limitations for the tax authorities’ right to assess, which means that, in this case, the second assessment was also null and void due to being statute-barred.

 

Penalty procedure

When a penalty is voided for substantive reasons and the decision has become final, the enforcement period is one month

National Appellate Court. Judgment of October 1, 2019, appeal 259/2016

In the examined case, TEAC had rendered a decision holding that one of the challenged penalties was null and void for substantive reasons.

As a result of this decision, the tax authorities had to render a new penalty decision, to enforce that decision partially upholding the claim.

The National Appellate Court concluded that the tax authorities had one month in which to do this. If they fail to meet this time limit, it is considered that the new decision was rendered out of time and therefore has expired, which means that the statute of limitations period or the tax authorities’ right to impose a penalty is not considered to be tolled.

 

Enforcement procedure

The tax authorities have to provide proof of the date when they receive the decisions they are required to enforce

National Appellate Court. Judgment of June 5, 2019

A regional economic-administrative tribunal issued a decision partially upholding the taxpayer’s claim. When enforcing that decision, the tax authorities had to issue a new assessment.

The General Taxation Law states that enforcement must be performed within the time remaining in the period allowed for the procedure that gave rise to the partially voided assessment or in six months, whichever is longer. The time period starts to run from when the decision is entered on the register held by the body responsible for its enforcement.

In the examined case, however, no proof appeared in the file of the date of receipt of the decision by the tax authorities; and no proof of this had been produced in the later review procedure, even though it had expressly been requested by the taxpayer.

The Supreme Court concluded in this judgment that:

1. The tax authorities should have provided verifiable evidence of the date on which the enforceable decision was received by the body that had to enforce it.
2. Because it failed to do so, it is presumed that it received the decision ten days after it was issued.
3. Because the new assessment was issued after the maximum time limit calculated from the end of the ten-day period, it was considered that the audit work did not toll the statute of limitations.

Two cassation appeals are awaiting decisions by the Supreme Court which will have to examine whether it is reprehensible for the tax authorities to defer the forwarding of the case record to the body responsible for enforcing the decision, and if so, what consequences this would have (admission decisions of November 14, 2018 -appeal 5442/2018- and of February 14, 2019 -appeal 7483/2018-).