Publications

Corporate income tax

The gain obtained from an exchange and subject to deferred taxation must benefit from the tax regime existing when the shares are subsequently transferred

Court of Justice of the European Union (CJEU). Judgment of September 18, 2019. Joined cases C-662/18 and C-72/18

A French taxpayer elected the tax neutrality regime for an exchange of shares, so taxation on the gain was deferred. After the exchange, a reduction was approved in French law for gains arising on the transfer of shares, linked to the holding period. The French courts took the view that, because the reduction was not in force when the exchange took place, it was only applicable to the gain arising between the exchange and the subsequent transfer of shares.

The request submitted to the CJEU concerned whether this interpretation is consistent with the EU Directive on the tax rules for restructuring transactions.

The CJEU concluded that it was not. It based this conclusion on the view that the shares received in the exchange are substituted for the securities existing before the exchange but retain their cost and holding period. In such cases, the transfer of the new securities must be taxed as if the exchange had not taken place, in other words, the same tax treatment must be given to the whole of the gain that arises on the transfer.

 

Corporate income tax

The auditors cannot adjust deduction of allowance for impairment of investments in equity securities in respect of dividends received in statute-barred years

National Appellate Court Judgment of July 25, 2019

Before 2015, allowances for impairment of investments in equity securities could be deductible if certain requirements were satisfied. In an audit, the tax authorities proposed a reduction to the amount deducted by a company by the amount the company received in dividends over the holding period for the shares, including those received in periods that were already statute-barred when the audit was performed.

The National Appellate Court concluded in this judgment that the dividends received in a statute-barred year cannot be included to calculate the tax deductible allowance, because this implies ignoring the statute of limitations when reviewing this year.

On another note, the court recalled that the tax authorities have a duty to adjust the taxpayer’s position as a whole so if the adjustment made in relation to one year has effects in another year, an adjustment must be made to that year also.

 

Cadastral values

The cadastral value of a property cannot be higher than the value appraised by the tax authorities for transfer and stamp tax purposes

National Appellate Court Judgment of February 7, 2019

The cadastral value of a property was challenged because it was believed to be higher than its market value. That property had been appraised by the tax authorities in a transfer and stamp tax audit, which resulted in a value for transfer and stamp tax purposes below the cadastral value.

The National Appellate Court ruled to set aside the cadastral value, and held that the cadastral value of the property must be, in this case, the value audited for transfer and stamp tax purposes, because it was lower than the cadastral value.

 

Administrative procedure

Appointment of a representative not correctly made by the taxpayer is valid if the taxpayer does not dispute it in the proceeding

Supreme Court. Judgment of October 3, 2019

In the case underlying this judgment, the steps required during the audit work had been dealt with by a person authorized in a standard appointment form delivered by the auditors at the start of the work. The scope of the appointment appearing in that form was to act in dealings with AEAT's auditors.

The Supreme Court was asked whether it must be considered that this type of appointment implicitly includes acting in the penalty proceeding.

According to the court, although it is true that the audit and the penalty procedure are separate and independent, the law does not require a specific power of attorney to be granted for the penalty proceeding. As a general rule, therefore, a combined power of attorney may be granted for both procedures. It is necessary, however, for the power of attorney to state appropriately all the steps that the representative is authorized to carry out. Therefore, if the power of attorney does not expressly state that the representative’s appointment by the taxable person includes the steps authorized in that power of attorney that are carried out in the penalty proceeding they are not valid.

The court clarified however that the representative’s appointment will be deemed confirmed where the administrative act has been challenged and no pleadings were made against the potential non-existence or insufficiency of the appointment of the person acting as representative in the procedure concerned.

 

Administrative procedure

Determining different periods for appealing against decisions according to whether or not they are in breach of the Constitution or EU law may not be consistent with the principles of equivalence and effectiveness

Court of Justice of the European Union. Judgment of September 11, 2019. Case C-676/17

Romanian law sets out a one-month limitation period for submitting a request for revision of a final judicial  decision handed down in breach of EU law. The limitation period is three months, however, if the appeal for revision is based on an infringement of national law.

The one-month limitation period was determined in a judgment published in 2017. In the case underlying the CJEU’s judgment, however, the appeal later held to be out of time was filed in August 2016.

The CJEU concluded as follows:

1. The described provisions could initially appear to be in breach of the principles of equivalence and effectiveness, although this will depend on the circumstances of the case.
2. In relation to the principle of equivalence, it needs to be analyzed whether both types of appeals are similar to conclude as to whether this principle is breached or not. According to the CJEU, this analysis has to be done by the referring court, which retains the right to file a new request for a preliminary ruling when it is able to provide the CJEU with all the elements enabling it to hand down a decision on compliance with the principle of equivalence.
3. On the principle of effectiveness:

 

Management procedure

If the expert appraisal procedure lasts longer than six months late-payment interest stops accruing

National Appellate Court Judgment of July 10, 2019

The Supreme Court concluded in a judgment rendered on January 17, 2019, that the maximum period for deciding a procedure for an expert appraisal requested by the taxpayer is six months, and failure to render a decision in that period cannot be deemed approval by silence.

The National Appellate Court concluded that a breach of that period stops late-payment interest accruing to the authorities.

 

Audit procedure

The tax authorities cannot hold that transactions in statute-barred periods before July 1, 2004 were performed with evasion of the law

Supreme Court. Judgment of September 30, 2019

Following a corporate income tax audit for the years between 2005 and 2008, the authorities held that evasion of the law had occurred in relation to a number of transactions carried out in 2002 and 2003, which did not fall within the scope of the audit and moreover had become statute-barred. The aim of this decision was to adjust the effects of those transactions in the years being audited (specifically, in relation to amortization of the goodwill that arose in transactions held to be performed with evasion of the law).

The Supreme Court invoked its earlier judgments rendered on May 26, 2016 (appeal 569/2015) and October 17, 2016 (appeal 2875/2015) and found in favor of the taxable person. Namely:

1. It affirmed that the date determining the legal regime applicable to the tax authorities’ right to audit the statute-barred years is not that of the audit work, instead the date when the audited acts, transactions and circumstances took place.
2. Because the audited transactions were subject to the 1963 General Taxation Law, the tax authorities were not allowed to audit the acts, transactions and circumstances that took place in statute-barred tax periods not even for the purpose of extending their effects to non-statute barred years, because this right was introduced in the 2003 General Taxation Law.
3. The court denied, however, that the tax authorities are allowed to audit transactions commenced in 2002 (before the 20003 General Taxation Law came into force) that had effects in statute-barred years (2002, 2003 and 2004).

The same judgment examines other issues related to the procedure carried out by the auditors. Specifically, following the decision confirming evasion of the law the company was granted ten days to submit pleadings (the law allowed this period to be extended for between ten and fifteen days). The appellant asked for the period to be extended for a further five days, but this request was not answered by the authorities. Nevertheless, the tax authorities treated the extension for the requested number of days as a delay, which allowed them to stop a few of the reviewed years becoming statute-barred. In relation to transfer and stamp tax the Supreme Court concluded that:

1. Where the law determines a minimum period and another maximum period for the submission of pleadings, the authorities have a discretionary right to specify that period.
2. However, granting the minimum period without providing reasons for doing so and without a specific answer by the tax authorities means, in this specific case, that the extension cannot be treated as a delay attributable to the taxpayer.

 

Management and audit procedure

Tax obligations audited by the tax authorities cannot be reviewed again

National Appellate Court Judgment of July 11, 2019

A taxpayer claimed on its corporate income tax return a tax credit for reinvestment of extraordinary income.

After it filed its return, a limited audit was initiated to confirm satisfaction of the requirements for the tax credit. The management procedure ended with no adjustment.

Later a general audit was initiated on corporate income tax for the same year, which disallowed the tax credit.

The National Appellate Court refused to allow the same tax credit to be examined twice and reiterated its case law on the preclusive effect of the limited audit procedure in relation to the right to review anything already audited in that procedure.

 

Penalty procedure

Penalty procedures over failure to comply with requests from the authorities expire in three months

National Appellate Court Judgment of July 8, 2019

Under the legislation on penalties, a penalty procedure has to be started within three months after notification of the decision bringing the audit or management procedure to an end. If that period is not observed, the authorities’ right to impose a penalty expires.

The law does not, however, expressly mention an expiry period for the imposition of penalties for failure to comply with requests from the authorities.

The National Appellate Court concluded that the three month period also applies in these cases and must run from the end of the period granted in the request to the person with tax obligations.

 

Criminal proceedings

Article 197 bis.2 of the regulations on the application of taxes, under which the tax authorities could initiate a criminal proceeding even after issuing an assessment and imposing a penalty

Supreme Court. Judgment of September 25, 2019

The Supreme Court has upheld an appeal lodged by the Spanish Association of Tax Advisers (AEDAF) and set aside paragraph 2 of article 197 bis of Royal Decree 1065/2007, which allowed the tax authorities to identify indications of a criminal offense and initiate the relevant criminal proceeding “at any time”, regardless of whether it has already issued an official assessment or even imposed a penalty for the same facts.

The court held that the absence of a time limit for initiating a criminal proceeding besides not being authorized in the law comes into direct conflict with the legal rules which, in the event indications of a criminal offense are identified, prohibit the authorities from initiating a penalty proceeding or from ending a penalty proceeding that has already started on those facts. It held moreover that the provision in the voided provision is contrary to the principle of legitimate expectations and the  ne bis in idem principle preventing examination of the same facts twice.