Tax Newsletter - October 2018 | Judgments
Tax Newsletter - October 2018 | Judgments
EU law/questions of interpretation
National courts have obligation to refer questions of interpretation of the Treaty on the Functioning of the European Union
Court of Justice of the European Union. Judgments of September 20 and October 4 2018, cases C-685/16 P and C-416/17
In two recent judgments, the CJEU has again held to be contrary to EU law, two tax regimes establishing discriminatory treatment in relation to the taxation of dividends from other member states or from third states.
For our purposes here, the judgments contain two particularly important findings:
In one of these, the CJEU reiterates that a general presumption of fraud or abuse cannot justify a measure which prejudices the enjoyment of a fundamental freedom guaranteed by the Treaty on the Functioning of the European Union (TFEU), and the mere fact that the company distributing the dividends is located in a non-member state cannot set up a general presumption of tax evasion (September 20 judgment).
In the other, the CJEU recalls that, where there is no judicial remedy against the decision of a national court, that court is in principle obliged to make a reference to the Court (within the meaning of article 267 TFEU) where a question of the interpretation of the TFEU Treaty is raised before it. This is intended to prevent a body of national case law that is not in accordance with the rules of EU law from being established in any of the member states (October 4 judgment).
A tax is an integral part of state aid where it is collected exclusively and fully to grant the aid
Court of Justice of the European Union. Judgment of September 20, 2018, case C-510/16
The European Commission held to be compatible with the internal market several aid programs for the film and audiovisual industry established by France. Those programs were mainly financed through three taxes. The amounts ultimately collected from those taxes were more than 20% above the projections notified by France to the European Commission in relation to authorization of the aid.
In this context, a request for a preliminary ruling was submitted to the CJEU as to whether in the described scenario, an existing type of state aid has been amended and whether, under Regulation No 794/2004 and article 108.3 TFEU, that amendment should have been notified to the European Commission. The CJEU gave an affirmative reply to both questions, on the basis of the following arguments:
The three taxes are an integral part of the state aid described, insofar as the whole of the collected amount goes exclusively towards the grant of that aid.
It is not an inescapable requirement for the increase in the collected amount to be due to a legal amendment of the state aid program.
Personal income tax
Maternity benefit is exempt from personal income tax
Supreme Court. Judgment of October 3, 2018
The Supreme Court has put an end to a discussion over the personal income tax exemption for maternity benefits, following conflicting views from the high courts, through a judgment rendered on October 3, 2018, as discussed in our tax alert: Alerta Tributario 14-2018.
The Supreme Court concluded that the maternity benefit funded by the Spanish Social Security Institute falls within the exemption envisaged in the Personal Income Tax Law for “other public benefits for birth, multiple birth or adoption, adoption, dependent children or orphans”.
VAT on share purchase costs is deductible
Court of Justice of the European Union. Judgment of October 17, 2018
As discussed in our VAT alert: Alerta IVA 2-2018, the CJEU has concluded that input VAT on the purchase of shares is deductible if the intention to provide services to the acquired subsidiary is substantiated. This includes input VAT on advisory services related to the purchase, even if it does not ultimately take place, so the services are never actually provided to the potential subsidiary.
Transfer and stamp tax
Only one stamp tax charge when horizontal property established and condominium dissolved in one transaction
Catalonia High Court. Judgment of April 26, 2018
Stamp tax is charged under the notarized documents heading on the first copy of notarized public deeds and certificates that relate to an amount or valuable item and contain transactions or agreements that may be registered. Where two transactions are documented in the same deed, you might expect there to be two stamp tax charges.
Catalonia High Court has concluded, however, that where the establishment of the horizontal property system and the dissolution of the existing condominium are documented in the same deed, stamp tax is only chargeable on dissolution of the condominium, insofar as it is a necessary transaction for subsequent establishment of the horizontal property system.
Transfer and stamp tax
Transfer of share in tenancy in common to another tenant in common is not an exempt excess allocation if tenancy in common is not dissolved
Catalonia High Court. Judgment of May 17, 2018
Certain specific excess allocations are exempt from transfer and stamp tax. It is settled case law, for example, that excesses resulting from the allocation to a tenant in common of an indivisible property are exempt.
In this judgment, however, it was concluded that this exemption only applies where the reason for that allocation to a tenant in common is the dissolution of the tenancy in common.
The case under examination concerned a tenancy in common with four members in which one transferred his share to the others, without the tenancy in common being dissolved. In this case, concluded the Catalonia High Court, the exemption does not apply.
Tax on large retail establishments
Tax on large retail establishments is lawful
Supreme Court. Judgments of September 19 and September 26 2018
The Supreme Court has rendered various judgments on the lawfulness of the regulations related the taxes on large retail establishments in Catalonia and Navarre, autonomous community taxes charged on the economic capacity of superstores and retail establishments as a result of the adverse impacts they cause to the environment and the organization of land.
Specifically, it confirmed that the legislation is not unconstitutional or contrary to EU law, according to the CJEU’s findings in its judgments rendered on April 26, 2018. In relation to Catalonia, however, it concluded that the fact of leaving collective establishments measuring more than 2,500 meters outside the tax is state aid, and for that reason it set aside Decree 324/2001 approving the Regulations on the tax on large establishments in the Catalonia region. The decision as to the effects of this finding of state aid on assessments of the tax depends on the judgments on these assessments that are expected over the coming days.
Financial liability of the state
Basque provincial governments not required to indemnify companies for refund of aid equal to 45% of investments
Supreme Court. Judgment of September 5, 2018
As we discussed in our October provincial tax newsletter for the Basque Country (Newsletter Fiscal Foral País Vasco – Octubre 2018), the Supreme Court has held that the legal requirements had not been satisfied for Basque provincial governments to have any obligation, arising from the financial liability of the state, to the beneficiary companies of aid in the form of an asset equal to 45% of the investments made, after they had to refund them under the European Commission Decision holding that they were contrary to EU law (Decision 2002/820, of July 11, 2001).
Orders for entry and search by Tax Agency officials must be sufficiently reasoned
La Rioja High Court. Judgment of June 7, 2018
La Rioja High Court recalled that the decision authorizing the entry and search of a property by tax auditors must be sufficiently reasoned. For the reasoning to be valid it must set out the necessary information to particularize the case and to support that the measure is reasoned and justified, for which reason general references to the existence of circumstances indicating infringements are not acceptable.
In other words, the decision must contain reasoning that paints a sufficiently broad picture of the circumstances indicating breaches of tax law by the parties with tax obligations, and must also assess the reasonableness and proportionality of the entry and search.
If a reassessment has effects on other non-audited years, tax authorities must correct returns
National Appellate Court. Judgment of May 16, 2018
The outcome of an audit often has effects on later years on which returns have been filed. The question associated with this is whether the taxable person must file supplementary or correcting returns for those later years and whether, moreover, in the first case, they must pay the related late filing surcharges.
The National Appellate Court was categorical in concluding that the tax authorities may not transfer to taxpayers the burden of correcting their self-assessments if the interpretation adopted by the tax authorities in their audit work has an effect on other years. In these cases, the tax authorities must, on their own initiative, make the reassessment for later years.