Publications

Principle of primacy

Government authorities have a duty to disapply national law that is contrary to EU law

Court of Justice of the European Union. Judgment of December 4, 2018, case C-378/17

The Court of Justice of the European Union (CJEU) recalled in a judgment rendered on December 4 that the primacy of EU law means that the national courts called upon to apply provisions of EU law must be under a duty to give full effect to those provisions. This involves, if necessary, refusing to apply any conflicting provision of national law, without requesting or awaiting the prior setting aside of that provision of national law by legislative or other constitutional means.

The CJEU went on to clarify that this duty to disapply national legislation that is contrary to EU law is owed not only by national courts, but also by organs of the State – including administrative authorities - called upon, within the exercise of their respective powers, to apply EU law.

 

State aid

The selective nature of State aid must be examined from the standpoint of the objective pursued by the tax system concerned

Court of Justice of the European Union. Judgment of December 19, 2018, case C-374/17

The question referred to the CJEU for a preliminary ruling concerned whether State aid excluded the company from the exemption provided for in German transfer tax law for transfers of real property as a result of restructuring procedures involving only companies in which at least 95% of their shares were held in the years before and after those transactions.

Before ruling on the facts of the case, the CJEU recalled that the selective nature of a State aid must be examined in the light of the objective pursued by the tax system concerned. From that standpoint, it held that the referred case did not fulfill the selectivity requirement insofar as the companies in a same group and independent companies are not in a comparable situation. The CJEU argued in this respect that the distinction is justified since it seeks to avoid the double taxation that would occur if transfers of real property were taxed within a same group.

 

Personal income tax

The sale of the principal residence is only exempt if ownership of the property has been held for longer than three years

Supreme Court. Judgment of December 20, 2018

The Supreme Court examined the case of a couple who had been residing in a dwelling since 1973. The dwelling was originally owned separately by one of the spouses, but was contributed to the community property system in October 2003. In August 2006, the dwelling was transferred by both spouses. Because they were both aged over 65, they applied for the exemption for the principal residence available for taxpayers over that age. 

The Supreme Court confirmed in relation to this case that the exemption is only available for the gain relating to half the property, namely, the portion belonging to the spouse that had owned the dwelling since 1973; because the other spouse had owned their half for fewer than three years.

The court affirmed that for the exemption to be applicable it is necessary, in addition to the age requirement, (i) for the transferred dwelling to have been the principal residence for an uninterrupted period of, at least, three years (which was satisfied in this case), and (ii) that throughout that period the taxpayer held absolute ownership of the residence (which in this case was only satisfied by one of the spouses).

 

Personal income tax

Nonresidents subject to personal income tax in the framework of limited tax liability may deduct compulsory contributions paid into an occupational pension scheme

Court of Justice of the European Union. Judgment of December 6, 2018, case C-480/17

German law does not allow non-resident taxpayers subject to personal income tax in the framework of limited tax liability to deduct the amount of compulsory contributions paid into an occupational pension scheme, in due proportion to the share of the income taxable in Germany, even if the contributions are directly linked to the activity which generated that income; whereas a taxpayer resident in Germany, subject to personal income tax in the framework of unlimited tax liability is able to deduct those contributions to the extent laid down by national law.

According to the CJEU, this legislation restricts the freedom of establishment.

The European court took the view, however, that German law does not restrict the freedom of establishment by not allowing non-resident taxpayers to deduct non-compulsory contributions and amounts paid under private pension insurance arrangements from their tax bases, to the extent that they are not necessary to practice their profession in Germany, or to receive the taxable income, for which reasons it held that, in this case, resident and non-resident taxpayers are not in a comparable situation.

 

Transfer and stamp tax

The transfer tax payable on acquiring control of a company with real estate assets is calculated by reference to all the shares held

Supreme Court. Judgment of December 18, 2018

The Securities Market Law requires transfer tax (under the transfers for consideration heading) or VAT (as applicable) to be charged where control is acquired of companies whose assets are mostly composed of real estate not used for business or professional activities, or where, if such control is already held, the existing ownership interest is increased.

In the examined case, the transferee already held shares in the company, but increased his interest to the point where he gained control. At issue was whether, in this case, the transfer tax base must be calculated by reference only to the shares that enabled him to gain control or, by contrast, to all the shares held in the company.

The Supreme Court concluded that, since December 1, 2006, the date on which the amendment of the former article 108 of the Securities Market Law came into force, the tax base for these transactions must be determined by reference to the whole ownership interest that the person comes to hold when control is acquired, regardless of whether the transferee already held shares in the company.

 

Transfer and stamp tax

Deeds for the creation of pledges without transfer of possession are subject to stamp tax

Madrid high court judgment of July 9, 2018

Madrid High Court concluded in a judgment that a deed for the creation of a pledge without transfer of possession in relation to income from real property (a very common transaction in sales of real property) is an act with assessable economic value that may be registered at the Personal Property Registry.

Therefore, the taxable event for stamp tax purposes (notarial documents) occurs.

 

Real estate tax

The head of a large family is the beneficiary of real estate tax reductions regardless of the residence of the family members and of whether there has been separation or divorce

Balearic Islands High Court. Judgment of September 19, 2018

The real estate tax ordinance approved by Palma City Council excludes large families from eligibility for the reduction where not all members of the family unit live at the address for the beneficiary of the reduction.

According to the Balearic Islands High Court, this restriction is discriminatory and, therefore null and void as a matter of law, although it specified that the reduction may only be claimed at one address for the same large family.

 

Tax on economic activities

Location multipliers must be reasoned

Aragon High Court. Judgment of July 13, 2018

Local councils have the power to set rules on certain types of multipliers (location multipliers) weighting the physical location of premises in each municipality according to the category of the street on which they stand. The setting of rules on these multipliers is optional and they must be included in the relevant municipal ordinances.

A judgment by Aragon High Court examined the resolution by Zaragoza City Council adopted on December 23, 2016, approving Ordinance number 1 and its Annex relating to the tax categories of streets in the city and the resulting amendment of the location multipliers in the Tax Ordinance for the Tax on Economic Activities. Specifically, the challenge concerned the fact that in the administrative procedure for the first of the ordinances not one document appeared that gave reasons for the categorization of streets and their change of category from the previous ordinance; and no reasoning was present either in the procedure for the Ordinance for the Tax on Economic Activities.

Aragon High Court recalled that courts have the power to monitor and, if needed, reclassify the location multipliers for the tax on economic activities; and affirmed that the location multipliers must be reasoned and set on the basis of tax fairness parameters, as well as being understandable so the taxpayer may challenge them, because the fact that the Local Finances Law gives local councils the power to modify the minimum charges by applying the location multipliers does not allow them to be determined without any method whatsoever.

Because in the examined case these requirements were not met, the location multipliers in the Ordinance for the Tax on Economic Activities were rendered null and void.

 

Tax on construction, installation projects and works

The tax base in a final assessment cannot contain items not previously included in the provisional assessment

Supreme Court. Judgment of December 13, 2018

As we mentioned in our Tax Alert dated January 10, 2019, the Supreme Court concluded in a judgment rendered on December 13, 2018 that local councils are not allowed to include in the tax base in the final assessment of the tax on construction, installation projects and works (ICIO) items or elements which, despite appearing in the estimate submitted earlier by the taxable person, were not taken into account by the tax authorities to determine the tax base in the provisional assessment.

 

Cadastral values

The cost/benefit multiplier does not apply for calculating the cadastral value of properties not built for subsequent sale

National Appellate Court. Judgment of October 8, 2018

To determine the cadastral value of an urban property a number of correction modules and multipliers are used. These include the cost/benefit multiplier reflecting the costs and benefits associated with property development.

In a judgment rendered on October 8, 2018, the National Appellate Court concluded that this multiplier does not apply when calculating the cadastral value of a hospital and of a home for the elderly, even if their owner had them built, on the basis that they were not built for the purpose of later being sold, but to be exploited directly in the healthcare and geriatric activities conducted by the owner/developer.

 

Audit procedure

Economic-administrative tribunal decisions changing an interpretation given by the DGT cannot be implemented retroactively

Andalusia High Court. Judgment of December 19, 2018

The case examined by Andalusia High Court concerned a taxable person who based a tax return on an interpretation that had been reiterated by the Directorate General for Taxes (DGT) in relation to a certain taxable event. The Central Economic-Administrative Tribunal (TEAC) later gave an opposite interpretation in one of its decisions and, on the basis of that TEAC interpretation, the person’s tax amount was adjusted in an administrative procedure.

According to Andalusia High Court, this adjustment was contrary to the principles of legitimate expectations and to the estoppel doctrine.