Publications

Corporate income tax

Reduction of the administrative burden associated with capital requirements for insurance companies can be a valid economic reason

Directorate General for Taxes. Resolution V1516-19 of June 24, 2019

The requesting entity is an insurance company subject to the legislation on insurance companies operating in Spain, and parent company of a group consisting of another insurance company, wholly owned by the requesting entity. The issue concerned a merger to absorb the subsidiary.

The DGT accepted as a valid economic reason a reduction of the administrative burden arising from the capital requirements laid down for insurance companies, and, in particular, associated with gathering, preparing and filing information to be included in their mandatory reports to the Spanish Insurance Regulatory Authorities.

 

Corporate income tax

If a total spin-off is followed by a gift of the received shares, the proportionality requirement may be affected

Directorate General for Taxes. Resolution V1189-19 of May 29, 2019

Eligibility for the tax neutrality regime of total spin-offs where there are two or more transferees requires the spun-off assets and liabilities to consist of lines of business if the shares allocated to the shareholders at the transferees do not represent the same proportion as at the company performing the spin-off. In other words, if that proportion is retained, it is not necessary for the spun-off assets and liabilities to be lines of business.

In the case studied for this resolution an individual intended to carry out a total spin-off from an entity at which they are sole shareholder to form three companies, so that in the future each of the individual’s three children would inherit the assets and liabilities of the company performing the spin-off separately. The allocation of assets and liabilities to each of the three companies would not be based on any economic or business reasons.

The DGT concluded as follows:

1. Insofar as the company performing the spin-off only has one shareholder who will receive all the shares of the beneficiary companies of the spin-off, the proportionality rule is not altered, and therefore it is not required for the spun-off assets and liabilities to be lines of business.
2. However, if after the spin-off has been performed, the owner of the companies resulting from the spin-off makes a gift of a percentage of each of these three companies to each child, with the aim of bringing forward their future inheritance, the tax neutrality regime is not allowed to be claimed, because the DGT considers that the gift has the same effect in practical terms as a non-proportionate spin-off.

 

Corporate income tax and nonresident income tax

The DGT clarifies taxation of transnational exchanges

Directorate General for Taxes. Resolution V1579-19 of June 26, 2019

The request concerned the case of a Spanish resident entity wholly owned by individuals (one owning more than 25% and the others owning less) and by a company, all resident in Portugal. A share exchange was being considered in which the Portuguese company would become sole shareholder of the Spanish entity.

The DGT concluded as follows:

1. The tax neutrality regime could be claimed because (i) the Spanish company’s shareholders were resident in an EU member state and (ii) the Portuguese entity would acquire shares in the capital stock of the Spanish entity that would enable it to obtain a majority of the voting rights or increase that majority.
2. In relation to the taxation of the individual shareholders resident in Portugal for nonresident income tax purposes:

• Under the Portugal-Spain tax treaty, the capital gain generated on the exchange of shares by the shareholders with an ownership interest in the Spanish company below 25% is only taxable in Portugal.
• According to that treaty, the gain arising in the hands of the shareholder with an ownership interest above 25% is subject to and not exempt in Spain; but under the neutrality regime tax is allowed to be deferred if the conditions set out in this regime are met.

 

Personal income tax

It is not possible to transfer to future years a contribution to the pension plan of a spouse who obtained income higher than €8,000

Directorate General for Taxes. Resolution V1501-19 of June 22, 2019

The Personal Income Tax Law allows taxpayers to make contributions to their spouses’ pension plans (up to €2,500 a year) and for those taxpayers’ own taxable income to be reduced by the amount of those contributions. For this to be allowed, the spouse’s salary income cannot be higher than €8,000 a year.

In the examined case, this last requirement was not met and it was asked whether the reduction could be claimed in later years.

The DGT disallowed this option of transferring the unused reduction to later years, because in this case the inability to claim the reduction arose from failure to satisfy the requirements for the contributions made for the spouse to be used.

 

Personal income tax

Reduction for multi-year income can be claimed for income from early settlement of stock options plan

Directorate General for Taxes. Resolution V1355-19 of June 10, 2019

A subsidiary’s employees were included in a stock options plan on the parent company’s shares in 2015. Since then the options had vested and therefore the right to exercise them had arisen, although at the time of the request no employee had exercised that right.

The plan’s rules state that if a corporate transaction occurs, the board of directors may make a payment to the plan participants in respect of early settlement of the stock options plan. Under that rule, and as a result of a corporate transaction involving a merger and change of control at the parent company, the requesting company had made those payments.

The DGT concluded as follows:

1. Since the right to early payment had been allowed in the plan from the start in the event of a corporate transaction, the income ultimately obtained started to be generated when the options were granted to the employees.
2. Insofar as two years had elapsed between when the stock options plan was put in place and the early payment, the income obtained from that payment was multi-year income and could benefit from the 30% reduction (if the other requirements set out in the law to claim this reduction are met).

 

Personal income tax

In the year a worker is hired, the exemption for work abroad is calculated by dividing the salary obtained by the total number of days in the year

Directorate General for Taxes. Resolution V1343-19 of June 10, 2019

The Personal Income Tax Law allows an exemption for income from the performance of work abroad. To calculate the exemption, if no specific salary has been specified for the work performed abroad, the worker’s daily salary (annual salary divided by the total number of days in the year) must be multiplied by the number of days worked abroad.

In the case examined for this request, the requesting individual started working at a company on February 1, 2018, and was entitled to the exemption in respect of 12 days. For the calculation of exempt income, it was asked how to calculate daily salary: by dividing the salary obtained by the number of days since February 1 (334 days) or by dividing that salary by all the days of the year (365 days).

The DGT, in a questionable view, concluded that the numerator must include the whole amount of salary obtained, and the denominator, the total number of days in the year (365 days). After making that calculation, the income qualifying for the exemption is calculated by applying the result of that division to the days that the worker was sent abroad (12) to perform the hired work; all of the above subject to a cap of €60,100 for a year.

 

Personal income tax

Salary income obtained from court-approved settlement agreements may qualify for the 30% reduction

Directorate General for Taxes. Resolution V1285-19 of June 6, 2019

Under a collective labor agreement and a settlement agreement between the requesting individual and their employer, each of which had been approved by a court decision, two sums were required to be paid to the worker “in respect of indemnity for the productivity bonus and unused leave for the period between 2013 and 2016” (in the collective labor agreement) and “in respect of damages for lack of progression on the long-haul fleet within the time limit and for the period between 2013 and 2016” (in the settlement agreement).

The DGT concluded as follows:

1. These items of income must be reported in the period when the court decisions become final.
2. Since the income is reported in a single tax period but relates to a period spanning more than two years (2013-2016), the 30% reduction for salary income generated over more than two years can be claimed.

 

Personal income tax

Goodwill included in a business acquired by gift is not amortized

Directorate General for Taxes. Resolution V1259-19 of June 3, 2019

The requesting entity received a gift of a business, composed of premises, furniture, inventories and goodwill and asked whether amortization of the goodwill was an option when determining its income from the activity.

The DGT recalled that net income from economic activities is generally determined according to the corporate income tax rules and that, for this tax, book income is used, determined according to the Spanish National Chart of Accounts. According to the accounting legislation, goodwill can only appear in assets when its value is realized in an acquisition for consideration, in the context of a business combination. In other words, goodwill acquired for no consideration cannot be capitalized.

In the studied case, therefore, insofar as the business was not acquired for consideration, the goodwill cannot be amortized.

 

Inheritance and gift tax

Days spent abroad do not count for determining the autonomous community of residence

Directorate General for Taxes. Resolution V1255-19 of June 3, 2019

An individual resident in Madrid wanted to make a gift to their daughter. The daughter resided in Mexico DF, for work reasons, between 2011 and May 2018, the date she relocated her own and her family’s permanent residence to Madrid, where she resided at that time.

To ascertain the law applicable to the gift the autonomous community where the recipient is resident needs to be determined, which is the place where that individual spent the greatest number of days in the immediately preceding five-year period (running from date to date) ending the day before the date the tax falls due.

According to the DGT, to make this calculation it is not necessary for the recipient to have spent in any specific autonomous community half plus one of the days in the preceding five years, instead it is sufficient not to have spent more days in any other autonomous community; in other words, only the days she spent in Spain count.

 

Excise duty on electricity

The exemption for electricity for own use applies to lessees of solar power infrastructure

Directorate General for Taxes. Resolution V1573-19 of June 25, 2019

Under article 94.5 of the Law on Excise Duties, electricity used by holders of electricity generation infrastructure using renewable sources, co-generation and waste with an installed capacity not above 50 MW is exempt.

This request for resolution concerned a company supplying solar panels to its customers for their own use, by either leasing or installing panels at customers’ homes.

In this context, it was asked whether that exemption can be claimed for the use of energy from infrastructure installed at a customer’s home, where the customer holds the materials composing the infrastructure under a lease.

The DGT concluded that, if the industry legislation allows the lessee of infrastructure to be registered as holder on the public register of electricity generation infrastructure, the exemption could be claimed, because there are no specific provisions on this matter in tax law.