Tax Newsletter - February 2020 | Resolution requests
Corporate income tax
The transfer of tax losses in a spinoff under the neutrality regime is only restricted by any impairment losses that were deductible
Directorate General for Taxes. Resolution V3525-19 of December 23, 2019
The requesting entity intends to carry out a short-form spin-off of a line of business of company B to its sole shareholder A. Company B has generated tax losses in the activities in that line of business; and company A has recorded tax deductible impairment losses in respect of its investment in B, which relate to the losses generated by B that have given rise to the mentioned tax losses.
In relation to the transfer of the tax losses to the recipient of the line of business (A), the DGT affirmed that:
(a) The spirit and aim of laws restricting transfers of tax losses in transactions under the tax neutrality regime is to prevent the same loss being used twice.
(b) For that reason, in the described transaction the unused tax losses at B may be used by A, but after reducing those losses by the impairment loss that was deductible at A.
(c) For the same reason, any portion of the impairment loss recorded and deducted by A that was reverted before the spin-off (and, as a result, was included in the tax base) does not reduce the tax losses to be received by A.
However, insofar as company A will retire a portion of its shares in B to receive the spun-off assets and liabilities, the impairment loss associated with those shares and to be reverted (which will be retired as a result of the transaction), is included in the tax base to the extent of the income generated in the transaction.
Corporate income tax
Not-for-profit entities may use the capitalization reserve and claim credits
Directorate General for Taxes. Resolution V3521-19 of December 4, 2017
A not-for-profit association whose purpose is to foster scientific research and the development of technology, carries on activities related to research and development technical advice, studies and evolution of markets. Because it has not been granted public benefit status, it is eligible for the special tax regime for not-for-profit entities under the Corporate Income Tax Law.
The DGT replied that, in view of the activities carried on by the association, which require an organization for its own account of means for the purpose of participating in the production or distribution of goods or services, any income it obtains will be treated as obtained from conducting an economic operation and therefore will not be exempt from tax.
Despite this fact, the association may use the capitalization reserve, and claim the tax credit for R&D&I activities, if the requirements laid down in the law in relation those benefits are met.
Corporate income tax
The separation of properties without mortgage liens from others that are mortgaged is a valid economic reason for claiming the tax neutrality regime
Directorate General for Taxes. Resolution V3418-19 of December 13, 2019
Entity A conducts a business involving the acquisition and development of business premises. As a result of conducting this business, it has acquired a varied portfolio of properties, a few with mortgages. It also leases certain properties to other group companies.
It is considering performing a spin-off, in which it would transfer all of its assets and liabilities to two newly created companies. One would receive properties free of mortgage liens; and the second company, a portfolio of properties with or without mortgage liens.
The DGT accepted as a valid economic reason that the spin-off will be performed for the purpose of separating a portion of the properties without liens, so they are not liable for the bank debts that other properties are securing.
Corporate income tax
An expense incurred by not requesting refund of VAT incurred abroad is not deductible
Directorate General for Taxes. Resolution V3417-19 of December 13, 2019
A company received an invoice from a French supplier with VAT. The invoice was accounted for separately from the VAT with the intention of applying for a refund in France. However, after the period for applying for a refund had run and therefore the right had expired, it recorded the VAT cost as an expense.
According to the DGT, the input VAT paid in France was originally a recoverable amount, because an application could be made using the statutory procedure for obtaining VAT refunds in France. Therefore, the expense incurred by waiving the right to apply for a refund cannot be treated as tax deductible, because it is really a gift.
Corporate income tax
Reduced rate applicable for new entities if a related entity created earlier has the same corporate purpose but never started operating
Directorate General for Taxes. Resolution V3382-19 of December 11, 2019
The Corporate Income Tax Law allows a 15% reduced rate for newly created entities carrying on economic activities, in the first tax period when the tax base is positive and in the following period. One of the conditions for charging this reduced rate is, among other requirements, that the economic activity must not have been carried on earlier by other individuals or entities related to the newly created entity.
In the case studied in this resolution, a newly created entity is 33% owned by a member who also owns 50% of a second entity created earlier. Both entities share the same corporate purpose but the one created first never started operating.
In these circumstances, the DGT allows the reduced rate to be charged to the new entity, because, although it is related to the one created first, this first entity never started operating; for which reason it cannot be considered that the new entity acquired the business of the previous one.
Personal income tax
Tax on late-payment interest received and later refunded to the public finance authority is only recovered by filing a correction return
Directorate General for Taxes. Resolution V3503-19 of December 20, 2019
In 2012 the Madrid autonomous community government issued an assessment disallowing the taxpayer's right to use certain inheritance and gift tax benefits. The taxpayer paid the assessed debt, but appealed against it to TEAC, and in 2017 obtained a decision partially upholding its appeal and ordering the Madrid autonomous community government to issue a new assessment.
The Madrid autonomous community government issued a new assessment in 2017 and ordered a refund to the taxpayer of the excess amount paid; a refund that was made in a subsequent year with late-payment interest. The Madrid autonomous community government, however, appealed against TEAC's decision to Madrid High Court, and obtained a favorable judgment in 2019, meaning that the taxpayer had to return to the public finance authority the amount paid earlier by the autonomous community government in respect of a refund of incorrect payments and late-payment interest.
The DGT examined the taxation of the interest received by the taxpayer in 2017 and the taxation of its subsequent return and concluded as follows:
(a) Late-payment interest received as a result of a decision to refund incorrect payments amounts to a capital gain to be included in the savings component of taxable income.
(b) A subsequent return of the interest will have an impact on the assessment for the year in which the received interest was reported by the taxpayer as a capital gain. To correct this situation, an application may be filed for correction of the self-assessment for that year.
Personal income tax
Eligibility for exemption on transfer of bare ownership of principal residence with reservation of a usufruct right does not prevent its subsequent rental
Directorate General for Taxes. Resolution V3313-19 of December 3, 2019
The Personal Income Tax Law allows an exemption for income obtained on transfers of principal residences by individuals over 65. The DGT has already concluded that this exemption is available for the transfer of bare ownership with reservation of a usufruct right.
In this resolution, the DGT concluded also that this exemption is not forfeited simply because the usufruct right holder (former full owner) rents the home after bare ownership has been transferred; a rental which is also fully consistent with the powers that civil law grants to the holders of usufruct rights in properties.
Personal income tax and inheritance and gift tax
DGT looks at how income generated by a website is taxed
Directorate General for Taxes. Resolution V3320-19 of December 4, 2019
An individual obtains copyright revenues from publishing work. He also shares teaching materials on a website. The website generates revenues for him from inserting advertisements (which are calculated by reference to the users who access the advertisements) and anonymous contributions from users, in respect of teaching material he shares on the website. The right to access that material does not depend on whether or not the user makes a voluntary contribution.
The DGT considers that:
(a) Copyright revenues in respect of publishing work are characterized as salary income, unless the author’s work is the result of carrying on an economic activity.
(b) The revenues from including advertisements on the website are characterized as income from an economic activity.
The anonymous contributions made by visitors to the website amount to income subject to inheritance and gift tax, insofar as they are voluntary contributions and access to the documents shared on the website does not depend on the making of those contributions. It is necessary, therefore, for the taxable person to put in place a mechanism by which it can identify givers as a result of its obligation both to identify them in the assessments of gifts and to apply the rule on the accumulation of gifts received from the same giver over a three-year period.
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