Publications

Corporate income tax

Late-filing of a return prevents the offset of net operating losses

Directorate General for Taxes. Ruling V2496-18, of September 17, 2018

In a decision rendered on April 4, 2017, the Central Economic-Administrative Tribunal (TEAC) concluded that if a company has not filed its corporate income tax return, it must be considered that it has not exercised its right to offset net operating losses, and has chosen to defer them in full.

The Directorate General for Taxes adopted this interpretation and concluded that this election cannot be corrected by filing a late return, or in the course of an audit.

 

Personal income tax

The burden of proof in relation to tax on per diems must lie, generally, with the payer

Central Economic-Administrative Tribunal. Decision of November 6, 2018

Payers of salary income subject to personal income tax are required to make withholdings, which subsequently reduce the amount of tax payable by the worker. The tax authorities are allowed to review the correct determination of the amounts to be paid over to the finance authority by both the payer/withholding agent and by the recipients.

Despite this, TEAC held that, under the principle of the availability and ease of access to proof, the tax authorities may not disallow an exemption claimed by a worker because that worker is not in a position to prove the requirements to claim an exemption, without first attempting to obtain the necessary documents from the payer through a request for information.

To arrive at this conclusion, the court made an interesting analysis of the burden of proof in relation to the exemption claimable for per diems in respect of normal traveling, meal and overnight expenses; and underlined that, generally, only the payer is able to prove quickly and conveniently details such as the day or place and the reason for the trip or the relationship between the expenses and the payer company's operations, in other words that the traveling expenses were incurred for reasons related to work and organization of the company’s economic activity.

All of the above is regardless of whether (i) some elements will be able to be substantiated by the worker, when the invoice or receipt was issued in the worker’s name, for example, as occurs with overnight expenses or toll and parking costs; or whether (ii) the recipient may voluntarily provide support for the exemption if it is available.

 

Personal income tax

Income obtained from the sale in installments of a client list after ceasing operations may be recognized as the price is collected

Directorate General for Taxes. Ruling V2531-18, of September 18, 2018

The requesting party decided to abandon the professional practice (law) he had been operating and sold his client list (proceedings) to a company, in exchange for a price composed of a fixed amount to be received in 2018 and a variable amount by reference to the success of the proceedings in 2019 and 2020.

Insofar as the client list associated with the professional practice is an element used in an economic activity, its transfer gives rise to a capital gain which must be recognized, generally, in the tax period in which the capital gain occurs (2018).

However, the special rule on the timing of recognition of the capital gain may be elected as the payments fall due, even if the client list was sold as a result of ceasing operating.

 

Personal income tax

If the local tax on increase in urban land value has not yet been assessed by the local council, it cannot reduce the capital gain

Directorate General for Taxes. Ruling V2522-18, of September 18, 2018

A property was transferred in 2018, and the local tax on increase in urban land value has not yet been paid. The local council is not expected to assess the tax until the second quarter of 2019, namely after completion of the filing period for the 2018 personal income tax return.

According to the Directorate-General for Taxes, the tax cannot be subtracted from the transfer value when calculating the income to be included in the 2018 return.

Later, when the local council assesses the local tax and it is paid, the tax liability for 2018 may be adjusted by filing the appropriate correction.

 

IRPF

The capital gain must be estimated if part of the price is uncertain

Directorate General for Taxes. Ruling V2517-18, of September 18, 2018

The shares of an unlisted company were transferred in exchange for a price composed of a fixed amount, received on the execution date of the sale deed, and a variable amount, which would be received in successive years if certain parameters were achieved.

Because the transfer value was not a predetermined amount, as a result of depending on unknown variables when the disposal took place, an estimate had to be made of final full price of the transfer, and the capital gain calculated by reference to that estimate. If in later years the amount received in respect of the variable component of the price differed from the estimate amount, then the required adjustment would have to be made, either by filing a supplementary return, with the related late-payment interest, or by correcting the filed self-assessment.

The Directorate General for Taxes acknowledged, however, that because this is actually a transaction with a deferred price, it may be elected to recognize the capital gain as the payments fall due.

 

VAT

Clarification of the requirements for the exemption in financial transactions and in ancillary services to insurance mediation companies

Central Economic-Administrative Tribunal. Decision of October 25, 2018.

These two decisions (numbers 02685/2017 and 01047/2015), both rendered on October 25, examined mediation activities in financial transactions. TEAC concluded in both cases that mediation in financial transactions is exempt only if the mediator is a third party other than the parties it brings into contact, presents itself as such and acts for itself and independently. In other words, the exemption is not claimable if there is no evidence that the mediating entity acts for itself or where it is verified that, in fact, it acts for and on behalf of its principal.

Decision 02685/2017 also examined the exemption in the case of ancillary services provided to insurance mediation companies. TEAC considered that the exemption is claimable in respect of ancillary services provided by the appellant to insurance mediation companies, insofar as it holds an indirect relationship with the insurer and a direct relationship with the policyholder and its activity covers essential components of the activities of insurance agents such as attracting clients.

 

Inheritance and gift tax

If central government legislation was applied in a filed self-assessment, the application of autonomous community legislation cannot later be requested

Central Economic-Administrative Tribunal. Decision of October 16, 2018

The law on autonomous community financing used to establish the connecting factor for inheritance tax in the autonomous community where the deceased resided when the taxable person (heir or legatee) is resident in Spain. This meant that central government legislation had to be applied when the deceased had not been resident in Spain or the taxable person was not resident there.

In a judgment rendered on September 3, 2014, the CJEU concluded that this law was precluded by the principle of freedom of movement of capital. It must be taken into account that a few autonomous communities provide very large reductions that do not exist in the central government legislation.

In the wake of this judgment, the law on the tax was amended. In additional provision two it provides that the legislation of an autonomous community legislation may be applied in cases where the deceased was resident, or the taxable person, is resident, in the European Union or in the European Economic Area (or both of them are) if any of the parties or property involved has any connection with an autonomous community.

This judgment examined the case of a taxable person whose wife resided in the United Kingdom. The death occurred in 2014, before the CJEU judgment and the subsequent entry into force of additional provision two. As a result of the filing periods for the tax, however, the self-assessment was filed afterwards. To be safe, the taxable person applied the central government legislation, but later applied for a refund of the excess amounts paid, by arguing that the principle in the judgment applied to him.

TEAC denied the right to a refund in this questionable decision. The tribunal held that when the return was filed, the taxpayer had a choice and elected to apply the central government instead of the autonomous community legislation, and therefore, in accordance with article 119.3 of the General Taxation Law, that election cannot later be changed. The tribunal recalled that it is a right that additional provision two establishes, a right for the taxpayer to apply the autonomous community legislation, and, since it is a right, it has to be elected.

 

Administrative procedure

Notices may be served on the person appearing as director of a company at the commercial registry 

Central Economic-Administrative Tribunal. Decision of October 15, 2018

According to TEAC, the notice to communicate mandatory inclusion on the enabled electronic address system of a company to the person appearing as its director at the commercial registry is correct, and therefore takes effect in relation to the company.

In other words, that notice does not have any liability effect for the director, instead it is the company itself which, under the principle of trust by the third party (in this case the authority that notifies the person appearing at the registry as representative) cannot refuse to assume the consequences of that notice served in good faith.

 

Audit procedure

The assessment in an accepted notice of assessment is not deemed to have occurred and been notified if, within a month from the notice of assessment, an attempt is made to notify the order to complete audit work

Central Economic-Administrative Tribunal. Decision of October 15, 2018

The General Taxation Law provides that a tax assessment in a notice of assessment is deemed to have occurred and been notified if in a period of one month, running from the day following the date of the notice, a decision by the competent authority ordering, among other options, completion of the procedure or the performance of additional audit work has not been notified.

This decision concerned a case in which the authorities had attempted to notify the taxpayer of a decision ordering completion of the audit work before the end of the one-month period running from the signing of the accepted notice of assessment. However, that decision was ultimately notified to the taxpayer after the end of that period.

In this context, TEAC concluded that it is sufficient if the first attempt at notifying the order to complete audit work was made within the one month period for the assessment in the notice not to be deemed to have occurred and been notified, even if the actual notification of the order takes place after the end of the one month period.

 

Review procedure

If new items of proof are produced in the economic-administrative jurisdiction, the court must confine itself to assessing those items 

Central Economic-Administrative Tribunal. Decision of October 15, 2018

In the purchase of a property various expenses were paid which the taxable person considered should be added to the purchase price. To substantiate this, in the economic-administrative claim it produced the invoices supporting those expenses. These invoices had not been produced earlier in the audit.

In its decision TEAC accepted that new items of proof could be produced in an economic-administrative claim proceeding. By doing so it reiterated its own interpretation (stated in a decision rendered on November 2, 2017 -Tax Newsletter – September 2017-), based on the Supreme Court's case law (in judgments rendered on April 20, 2017 –Tax Newsletter - May 2017- and September 10, 2018 –Tax Newsletter – September 2018-).

The court did however significantly limit the usefulness of producing these items of proof because it underlined that, in view of these new items of proof, its activity must be confined to assessing them, not carrying out any new review activities (which it is prohibited from doing). In the examined case, the taxpayer’s view was not accepted because, in its opinion, the simple fact of being in possession of an invoice does not allow per se the recognition of an expense.