Tax Newsletter - March 2019 | Judgments
Tax Newsletter - March 2019 | Judgments
Corporate income tax
Fair price must be reported in the fiscal year when the property is occupied
Supreme Court (Criminal Chamber). Judgment of February 13, 2019
As a result of a property acquisition by eminent domain conducted in a procedure for urgent cases, the public authority paid a fair price to the owner of the acquired property (a company). The fair price was determined in 2009, although it was paid in two instalments, between 2009 and 2010, and occupancy did not take place until 2010. The company did not include the income arising from acquisition by eminent domain on its corporate income tax returns for either 2009 or 2010; although it later filed a supplementary return for 2010 to include that income. This supplementary return, however, was filed after receiving a summons to make a statement as a party under investigation for a criminal offense against public finance in relation to corporate income tax for fiscal year 2010.
It was submitted to the Supreme Court that the income should actually have been reported in 2009, not in 2010, which rendered any potential criminal conviction null and void because the proceeding related to fiscal year 2010. And, for this same reason, there would be no criminal liability for the company (in addition to that of the director) because the liability of legal entities was not recognized in the legislation until the reform of criminal law in 2010.
In relation to these arguments, the Supreme Court concluded that the income arising from a property acquisition by eminent domain must be recognized for corporate income tax purposes in the period when occupancy of the acquired elements occurs. According to the court, this may be concluded from rulings by the Spanish Accounting and Audit Institute (ICAC), according to which the assets must be retired when they are handed over by signing the certificate recording the delivery of the price and occupancy, at which time the relevant gain (or loss) must be recognized in the income statement of the company concerned.
Nonresident income tax
The CJEU reinterprets eligibility for exemptions in parent-subsidiary and interest and royalties directives
Court of Justice of the European Union. Judgments rendered on February 26, one, in joined cases C-116/16 and C-117/16, and the other, in joined cases C-115/16, C-118/16, C-119/16 and C- 299/16
As discussed in depth in our commentary dated March 6, 2019, the CJEU has rendered two judgments bringing relevant elements for interpreting the parent-subsidiary directive and the interest and royalties directive. For further information on these judgments, that commentary is available HERE.
VAT refund may be denied if formal requirements are fulfilled after assessment becomes final
Court of Justice of the European Union. Judgment of February 14, 2019, case C-562/17
Spanish law sets out special treatment allowing traders and professionals not established in Spanish VAT territory, or in the Canary Islands, Ceuta or Melilla, to obtain a refund of input VAT on acquisitions and imports of goods and services made in that territory.
In the case giving rise to this judgment the authorities had denied a refund of the input VAT incurred by a Swiss company because the invoices had formal defects which were corrected only after denial of the refund had become final, as a result of which the Spanish authorities stood by their decision not to grant a refund.
The CJEU supported this decision by arguing that EU legislation does not preclude a member state from placing time limits for correcting invoices with errors to exercise the right to a VAT refund, provided the equivalence and effectiveness principles are met.
Transfer and stamp tax
Supreme Court clarifies taxable amount for payment of mortgage debt with property
Supreme Court. Judgments of January 31, 2019, February 6, 2019 and February 4, 2019
The Supreme Court examined in three judgments the taxable amount for transfer tax purposes (as a transfer for consideration) in transactions for payment of mortgage debts with property.
The court concluded that, according to a combined interpretation of article 10 and article 46.3 of the Revised Transfer and Stamp Tax Law, the taxable amount for these transactions is the higher of (i) the amount of the outstanding mortgage debt that is discharged through the transaction, and (ii) the actual value of the transferred property.
Tax on increase in urban land value
Payment of debts with property is exempt even if the transferee is not the mortgage
Madrid Court no 19. Judgment of February 06, 2019
Under the Local Finances Law, payment of mortgage debts with property transferred in exchange for discharging those debts is exempt from the tax on increase in urban land value.
Madrid Court no 19 concluded, in a recent judgment, that this exemption must be considered applicable also when the property is transferred to a third party other than the mortgage lender, if the mortgage lender accepts the property as payment.
In certain exceptional scenarios the cadastral value may be challenged when appealing against real estate tax assessments
Supreme Court. Judgment of February 19, 2019
A supreme court judgment settled the debate over whether the cadastral valuation of a property (not appealed at the time and therefore final) may be challenged when challenging a real estate tax assessment.
The court confirmed that an indirect challenge of this type is possible in certain exceptional scenarios allowing the principle of legal certainty to give way to other principles.
The judgment examined one of the scenarios considered exceptional: the property had been classified as urban and appeared with this classification in the notice of the relevant cadastral valuation. The local authority used this classification to issue the real estate tax assessments. The property, however, was an urban property for development on which an urban development plan had not been approved. According to the Supreme Court’s case law and the judgments of various high courts (rendered after that notice of the cadastral value), any land awaiting approval of the plan for its development must be classified as rural land.
The Supreme Court concluded that if case law rendered after the individual notice of cadastral values evidences that the land was not correctly classified, the real estate taxpayer is allowed to question the cadastral valuation when challenging the assessments of that tax (indirect challenge). The justification for this is that when the notice of the comparative valuation method report and the cadastral value was issued, the taxable person could not know that later case law, and therefore could not be expected to challenge the cadastral value directly.
An approved urban development plan is not sufficient to classify land as urban for cadastral purposes
Valencia High Court. Judgment of December 20, 2018
A judgment by Valencia High Court examined the case of a plot of land for which an urban development plan had been approved more than a decade earlier, although the programmed development work had not started. For this reason, the court concluded that it must be treated as rural land for the purpose of determining its cadastral value.
The court specified, on the basis of case law from the Constitutional Court, that the cadastral value for land must be determined according to “what is there” and not what planning provisions say “should be there”.
Information obtained from information collection procedure is only allowed to be used in another procedure if the first has expired
Supreme Court. Judgment of February 27, 2019
In a case examined by the Supreme Court, the tax authorities initiated a limited review procedure which ended with the issue of an assessment. The information used to issue that assessment had been obtained in a taxpayer information audit initiated almost two years earlier, in which the authorities never rendered a decision bringing it to an end.
The Supreme Court accepted that the tax authorities are allowed to use in certain procedures the information obtained in others. It affirmed, however, that the items of proof and documents gathered in information collection procedures only remain valid and effective if all the various types of protection afforded to citizens have been observed.
For these purposes, it needs to be taken into account that the procedures for obtaining information are subject to a time limit (six months in the case of taxpayer information audits); and therefore if that time limit is not observed, the tax authorities are only allowed to use the proof obtained if the procedures have been held to have expired and ended.
New information may be submitted in economic-administrative jurisdiction
Supreme Court. Judgment of February 21, 2019
The Supreme Court reiterated the theory it established in a judgment rendered on September 10, 2018 (summarized in our Tax Newsletter - September 2018) on the ability to plead information and produce items of proof in the economic-administrative jurisdiction that were not pleaded or produced to the tax management or audit authorities.
The court mentioned as an exception cases where the late production of documents is due to abuse or malicious purposes on the part of the interested party, which must appear justified in the case file.