Publications

Controlled transactions

Taxable persons not having a duty to document their controlled transactions may be subject to penalties under the general penalty regime in the General Taxation Law

Supreme Court. Judgment of October 15, 2018

The Corporate Income Tax Law defines a specific penalty regime for controlled transactions applicable to taxable persons legally required to keep and ensure that the tax authorities have access to the documents related to those transactions.

Specifically, if these taxable persons fulfill their duty to document the transactions and the pricing of their transactions is consistent with that included in the documents, no penalties may be imposed on them under that specific regime even if the normal market value of one or more of their transactions is found to be incorrect by the tax authorities.

The court affirmed, however, that, in relation to related-party transactions, any taxpayers who by law do not have a duty to keep and ensure that the tax authorities have access to the documents related to those transactions (because, for example, their transactions with one company are not above certain thresholds) penalties could be imposed on them under the general penalty regime in the General Taxation Law, provided the necessary intentional and factual requirements are met to impose penalties for a certain type of conduct (where, for example, it is verified that they have paid less tax as a result of incorrectly pricing their transactions and fault is held to exist).

 

Tax treaties

The CJEU rules on when it can examine infringements of tax treaties entered into between member states

Court of Justice of the European Union. Judgment of October 24, 2018, case C-602/17

It was raised whether the CJEU could rule on the conformity with EU law of a tax treaty entered into between two member states. The Court held as follows:

1. The CJEU does not have jurisdiction, in the context of a request for a preliminary ruling, to rule on the potential infringement by a contracting state of the provisions in a tax treaty entered into between two member states.
2. The CJEU is not allowed either to examine the relationship between a national measure and the provisions of a tax treaty.
3. However, when a tax regime under a tax treaty forms part of the legal framework applicable to a case that has been presented as such by the national court, the CJEU must take it into account in order to give an interpretation of EU law which will be of use to the national court.

   The case examined by the CJEU falls within this scenario, and therefore the court decided to examine the facts of the case. Specifically, it concluded that a provision in the Belgium Luxembourg tax treaty is not precluded by the principle of freedom of movement for workers by stating that the salary income obtained by a resident of one of the contracting states in relation to employment in the other state is exempt from tax in the state of residence of the employee only if the work is physically performed in the other contracting state (and not if it is performed from the state where the employee resides).

 

Corporate income tax

Valid economic reasons exist in the transfer of group financing to the operating subsidiaries where the assets are located

National Appellate Court. Judgment of June 28, 2018

A multinational group set up a company in Spain which acquired the shares of the Spanish operating companies in the group. The acquisition was financed with a loan from the parent company which this company had obtained from third parties. This transaction was followed by a merger between one of the acquired operating companies and the company that acquired them and the creation of a tax group.

The tax auditors found the existence of an artificial arrangement because they considered that the only aim of the reorganization was to place expenditure in Spain that would reduce the group’s corporate income tax base. For that reason, they concluded that the transaction had been performed with evasion of the law.

The taxpayer countered that the reorganization was founded on business reasons. This was because, since the financing had been obtained from third parties by the group’s parent company, the reasonable course of action was to transfer the debt to the various subsidiaries according to the value of their assets.  

In the National Appellate Court's opinion, the reason pleaded by the taxpayer is valid from a business standpoint, because it makes sense for the debt to be placed where the assets are located, regardless of whether tax is saved as a result. It therefore concluded that the finding of evasion of the law by the tax authorities was unfounded.

 

Corporate income tax

The investment impairment allowance is calculated from the subsidiary’s individual earnings 

Supreme Court. Judgment of October 2, 2018

According to the Supreme Court, the deductible amount of an investment impairment allowance must be calculated by reference to the income or loss of the investee, individually, not the consolidated figure.

The court recalled that the corporate income tax legislation takes precedence over accounting rules and that, specifically, article 12.3 of the law on the tax (which set out the rules on the tax deduction of investment impairment losses) referred to their net asset value per share, which is associated with the entity not the business group.

 

Corporate income tax

Banks’ input VAT on goods purchased to be delivered as income in kind to customers is not deductible

National Appellate Court. Judgment of May 28, 2018

A financial institution paid certain returns on movable capital to its customers in kind. Because it did not charge VAT on the supply of the goods, its input VAT on the purchase of those goods was not deducted. For that reason, it recognized an expense in respect of the input VAT that had not been deducted, which it deducted from the corporate income tax base.

The National Appellate Court affirmed, however, that the described book expense was not deductible on its corporate income tax return, because it related to voluntary assumption of the VAT cost by the financial institution and therefore must be treated as a gift.  

 

Transfer and stamp tax

Deeds for notification of new construction and for establishment of the horizontal property system are subject to stamp tax

Supreme Court. Judgment of October 09, 2018

The Supreme Court confirmed in this judgment that notarized deeds for notification of new construction and for establishment of the horizontal property system in buildings are subject to stamp tax because they relate to a sum of money or a valuable item and contain acts subject to registration at the property registry.

 

Transfer and stamp tax

The tax base in the winding-up of a community property system is the amount allocated to each owner

Supreme Court. Judgment of October 9, 2018

A community property system was wound up and the couple’s entire home was allocated to one of the spouses.

According to the Supreme Court, the stamp tax base in this case is 50% of the property’s value, in other words, the value that relates to the part of the property that the recipient did not have before the community property system was wound up.

 

Tax on increase in urban land value

The expenses associated with a property purchase increase the cost price 

Castilla y León High Court. Judgment of July 23, 2018 

According to confirmation given by the Supreme Court, the local tax on increase in urban land value only falls due if the land value increases between when the property is purchased and when it is later transferred.

In this judgment the court explained that the calculation of the cost price must include any development, notarization and registration costs and taxes (such as transfer and stamp tax) that fell due in relation to the purchase of the transferred property. This is the only way to calculate the taxable increase correctly for the purposes of the tax on increase in urban land value.

The Castilla y León High Court itself acknowledged that this is not a settled matter at this point and remains to be examined for a final determination by the Supreme Court.

 

Tax on large retail establishments

Tax on large retail establishments in Aragon and Asturias is lawful

Supreme Court. Judgments of October 2, October 11 and October 16 2018

The Supreme Court has rendered new judgments confirming the lawfulness of government regulations related to taxes on large establishments, in this case, the taxes in Aragon and Asturias.

In our Tax Newsletter - October 2018 we discussed earlier judgments by the same court in relation to the taxes in Catalonia and Navarra.

 

Requests for information

A general request for information on the legal profession as a whole is precluded by the law 

Supreme Court. Judgment of November 13, 2018

The Supreme Court set aside a decision rendered on July 20, 2017 by the General Council of the Spanish Judiciary which partially approved the request for information made by AEAT on the subject of the participation of lawyers and court procedural representatives (procuradores) in all court proceedings in 2014, 2015 and 2016, leaving out any parts related to identification of clients. The information requested by AEAT, for those years, related specifically to identifying each lawyer and court procedural representative that had taken part in legal proceedings at any court or tribunal sitting anywhere in Spain, and providing details such as the starting dates of their participation in the proceeding, the amount involved in the lawsuit, or identification of the client.

The Supreme Court explained that for a request for information of this type to be lawful a few objective guidelines on how they are to be made must be followed, and concluded that, in this case, the Tax and Customs Control Plans for 2016 and 2017 (which AEAT used to support its request) do not give weight to a request for information addressed generally to the legal profession as a whole.

 

Cadaster procedure

The cadaster is not allowed a third chance to value a property

Valencia High Court. Judgment of April 2, 2018

After two cadaster valuations had been set aside, the cadaster made a third valuation which it intended to have the same effective date as the two earlier ones.

Valencia High Court refused, however, to allow the cadaster to have up to three chances to value a property, and therefore concluded that the third valuation was null and void.

 

Review procedure

The tax authorities must apply the accepted interpretations for one tax to other taxes

Castilla y León High Court. Judgment of May 31, 2018

In a VAT audit, the authorities took the view that certain amounts of input VAT were deductible because the expenses on which the VAT had been charged were incurred for an economic activity.

In a later audit, however, they disallowed deduction of the same expenses for corporate income tax purposes precisely because they had not been incurred for any activity. Castilla y León High Court concluded that this second practice was not correct, because the tax authorities were bound by their own acts.