Publications

Corporate income tax

Before the current Corporate Income Tax Law, the regime for companies of a reduced size only required fulfillment of the net sales/revenues limit

Supreme Court. Judgment of July 18, 2019

A company engaged in property leasing claimed the regime for companies of a reduced size in 2010 and 2011. The tax authorities found that the company could not claim the regime because in those fiscal years it had not carried on a real economic activity (it lacked the resources –a full-time employee with an employment contract- as required in the TEAC decisions of January 29, 2009 and of May 30, 2012 rendered on appeals for a ruling on a point of law).

The Supreme Court examined the requirements that must be met by a company engaged in property leasing to be eligible for the tax incentives for companies of a reduced size under the revised Corporate Income Tax Law (TRLIS), then in force. It examined in particular whether those incentives:

• could be made conditional on the performance of a real economic activity, within the meaning of article 27 of the Personal Income Tax Law, not a legal requirement at that time (although it is in the current law) or;
• it is enough for the net sales/revenues figure to be below the legally specified limit, the only legal requirement laid down in the TRLIS.

After looking at how the corporate income tax legislation had changed, the court concluded that in the examined years the regime for companies of a reduced size could not be made conditional on the performance of a real economic activity (within the meaning of the personal income tax legislation), because the TRLIS did not expressly contain this requirement. The tribunal recalled that for the fiscal years that commenced on or after January 1, 2007, after the holding company regime had been removed, the definition of economic activity for corporate income tax purposes was not determined also according to the personal income tax legislation.

 

Basque country and Navarra finance authorities

To calculate turnover, advance payments are included in the year they are received

Supreme Court. Judgment of July 9, 2019

To determine the taxation of a taxpayer in the provinces of the Basque Country and Navarra or in the rest of Spain, the court examined whether, to calculate aggregate turnover for the year (article 14.2 -corporate income tax- and article 27.2 -VAT- in the Economic Accord for the Basque Country), advance payments before the supply of a good must be computed in the fiscal year the payments are received or in the fiscal year the good is supplied.

The Supreme Court held that, for the purposes of the Economic Accord, turnover must be determined in the same way for corporate income tax purposes as for VAT purposes. It used the following arguments to support that interpretation:

• The almost identical wording of articles 14.2 and 27.2 of the accord.
• The fact that the article referring to corporate income tax uses the term “turnover”, associated more with VAT, rather than “net revenues/sales”, a typical and specific accounting and corporate income tax term.
• The same maximum turnover figure is used for both taxes.
• Article 75.2 of the Spanish VAT Law and the legislation for the provinces of the Basque Country and Navarra determine that VAT becomes chargeable when the advance payments are made before the taxable event occurs.

Therefore, concluded the tribunal, aggregate turnover must be calculated by reference to the amount of the advance payments received in the year, even if the supply of the transferred good takes place in a later year.

 

Personal income tax

Clarification of various issues related to gambling income and losses 

Balearic Islands High Court. Judgment of July 23, 2019

A professional poker player obtained in a year before 2012 income and losses from carrying on gambling activities. The taxpayer took the following view:

1. The income had to be characterized as income from economic activities not as capital gains or losses, because he played poker professionally.
    
   The Balearic Islands High Court set aside this argument because, in its opinion, income obtained from poker does not depend only on personal work but largely on chance.
    
2. That the calculation of net income had to include traveling and subsistence expenses.
    
   Both the tax authorities and the court appeared to accept that deduction, although they denied the deduction of traveling and subsistence expenses in this specific case because their connection with the generation of income had not been supported properly.
    
3. That the gambling income and losses in the same fiscal year should be netted, as has been allowed in the law since 2012, which the court accepted.
    
   Specifically, the judgment explained that taxpayers can net income and losses, and they can also deduct the participation costs for tournaments in which no income is obtained. It added that this interpretation must be applied even before the amendment of the Personal Income Tax Law (before 2012, in other words), because otherwise the ability-to-pay principle would fail to be observed.

 

Real estate tax

Local councils cannot specify uses not included in the cadastre legislation for charging separate rates

Valencia High Court. Judgment of May 29, 2019

The Local Finances Law allows local councils to charge different real estate tax rates for urban real estate assets, by reference to the uses specified in the cadastre legislation for the appraisal of structures (excluding those for residential use).

In the case examined in this judgment, the appealing local council had approved in the appropriate tax ordinance a different real estate tax rate for buildings that had been allocated for “warehouse and parking” use.

Valencia Regional High Court held that the ordinance was unlawful on this point, insofar as the cadastre legislation does not contain a specific “warehouse and parking” use. In short, different rates are allowed to be approved by reference to use, but municipal ordinances must be based on the uses included in the cadastre legislation.

 

Tax on increase in urban land value

Supreme Court submits new request for a ruling on unconstitutionality concerning the legislation on the tax on increase in urban land value

Supreme Court. Order of July 1, 2019

As we reported in a tax alert published on July 18, 2019, available here, the Supreme Court has submitted a new request for a ruling on unconstitutionality in relation to the legislation on the tax on increase in urban land value, this time in a case where the tax charge was higher than the gain actually obtained by the taxpayer on the transfer of the asset.

We can now report that in an interlocutory order dated July 16, 2019, the Constitutional Court has admitted for consideration the request for a ruling submitted by Zaragoza Judicial Review Court number 2 in relation to this same matter.

 

Tax proceedings

The unlawful obtaining of bank details in another country does not infringe the right to due process with all the necessary safeguards

Constitutional Court. Judgment of July 16, 2019

In an appeal for protection of constitutional rights, the Constitutional Court has examined judgment number 116/2017, of February 23, 2017 by the Supreme Court (criminal chamber), in which it held proved that the appellant had not reported the ownership of specific bank accounts and financial assets held abroad. The facts were proved using economic information that a worker at a banking institution had obtained without authorization and which was found at their address by the public prosecution service in their country and handed over, at the request of the state tax agency, to the Spanish finance authority.

The Constitutional Court held in this judgment that the right to due process with all the safeguards, as granted in article 24.2 of the Spanish Constitution, is compatible with the interpretation made by the Supreme Court in article 11.1 of the Organic Law on the Judiciary. According to that interpretation, the exclusionary rule only affects violations that occurred in the gathering of evidence in a criminal proceeding.

Additionally, observed the court, the information used by the Spanish public finance authority related to peripheral and innocuous elements falling within so-called financial privacy. In fact, the information at issue did not relate to account movements, instead to the actual existence of the bank accounts and the amounts paid into them.

Lastly, it affirmed that in this case the invasion of privacy occurred outside the territory governed by Spanish sovereignty, and therefore any potential intrusion could only attain universal status if it violated “the irrevocable core of the fundamental right inherent in the dignity of human beings”.

For that reason, the Constitutional Court's plenary session unanimously declared that the obtaining of bank details, despite it being on record that they were stolen unlawfully by a third party, did not violate the right to presumption of innocence or to due process with all the safeguards.

 

Management procedure/requests for information

The information obtained through requests for information to third parties must be checked if the taxpayer denies the truth of its content

Galicia High Court. Judgment of July 17, 2019

The facts in the case examined in this judgment were:

1. The authorities had prima facie evidence that a taxpayer had obtained winnings at three casinos. They therefore made repeated requests for information to the casinos, which confirmed this and informed specifically of the amounts obtained by the taxpayer.
2. The taxpayer denied the truthfulness of the information supplied by the casinos. Despite this, the authorities issued a personal income tax assessment to the taxpayer, who included the gambling winnings to the general component of taxable income.
3. In court, the legal representatives of two of the casinos confirmed (in witness statements) the prior information but not the representatives of the third casino.

The National Appellate Court confirmed the validity of the inclusion of the gambling winnings obtained at the casinos whose representatives confirmed the information provided to the authorities. However it rejected the inclusion of the winnings allegedly obtained at the third casino. In the National Appellate Court’s opinion, the presumption of truth for replies to requests for information compels the authorities to check the information if the taxpayer denies the content of those replies, which the tax auditors failed to do in relation to the third casino.

 

Management procedure

Incorrect payments arising from a tax assessment can also be recovered within the statute of limitations period

National Appellate Court. Judgment of June 28, 2019

The taxpayer received an assessment in respect of inheritance and gift tax. The assessment was not appealed in the specified one month period, and therefore became final.

A judgment by the Court of Justice of the European Union on September 3, 2014 held that the legislation applied in that assessment was contrary to the law, and therefore the taxpayer considered that the payment arising from the authorities’ tax assessment was incorrect. For that reason, although the assessment was final, the taxpayer applied for a refund of the incorrect payments.

The authorities rejected the application due to considering that, insofar as the assessment had become final, the refund procedure for incorrect payments could not be implemented.

The National Appellate Court overturned that decision by concluding that, since no time limit is expressly provided in the law for being able to apply for a refund of incorrect payments, it may be commenced at any time before the end of the statute of limitations period (four years).

 

Tax audits

An order to complete the audit file does not give rise to a justified stay of the penalty proceeding

Supreme Court. Judgment of July 10, 2019

The Supreme Court rendered null and void the provision in article 25.4 of the penalty regulations under which an order to complete the file in a tax audit gives rise to a justified stay of the penalty proceedings and causes, therefore, an extension of the time limit for those proceedings.

The court held that on this point the penalty regulations run counter to the General Taxation Law, which does include this reason for staying the proceeding and which, by contrast, requires absolute separation between audit and penalty procedures.

 

Collection procedure

Supreme Court clarifies how to calculate late-payment interest in the event of a partially upheld claim against enforcement of a judgment

Supreme Court. Judgment of July 18, 2019

In the case examined in this judgment, the claimant’s petitions had been partially upheld. In enforcement of the judgment, the authorities issued an assessment covering tax debt and late-payment interest, which the taxpayer paid. However, a motion against an enforcement decision, was filed against the assessment, because the taxpayer did not agree with the calculation of late-payment interest. This motion was partially upheld, which resulted in a new assessment being issued to replace the previous one, in which the tax debt was not changed but the calculation of late-payment interest was, which gave an amount refundable to the taxpayer in respect of interest.

The issue with cassational interest examined in this judgment is as follows:

• Whether the tax authorities are allowed to net, as they did, the late-payment interest arising from the first and from the second assessment, and refund to the party with tax obligations the amount payable to it plus the late-payment interest relating to that refund, or
• whether, by contrast, the authorities must refund to the taxpayer the whole amount originally paid over plus the late-payment interest calculated on that amount and later issue the new assessment for the correct amount, without netting one debt against another for the purpose of calculating the interest.

The court concluded that the first alternative was correct.

 

Review procedure

The taxpayer is allowed to introduce new arguments and produce new evidence in the economic-administrative jurisdiction

National Appellate Court. Judgment of June 13, 2019

A company challenged an assessment by filing an economic-administrative claim. In the claim it submitted defense arguments that had not been used in the pleadings submitted against the notice of assessment and new evidence was produced.

In the economic-administrative tribunal’s opinion, it is not allowed to submit new arguments or additional proof in the economic-administrative phase.

The National Appellate Court, however, basing its judgment on the Supreme Court’s case law -in a judgment rendered on September 10, 2018- affirmed that the introduction of new arguments and proof in the economic-administrative jurisdiction is not forbidden by law, if there has not been procedural bad faith.