Publications

Personal income tax

Traveling time is included in calculation of exemption for work performed abroad

Madrid Regional Economic-Administrative Tribunal. Decision of February 25, 2019

Article 7 p) of the Personal Income Tax Law allows an exemption for income obtained for work actually performed abroad subject to certain requirements. In this case it was asked whether the calculation of that exemption had to include the days the worker traveled abroad or returned to Spain.

Madrid Regional Economic-Administrative Tribunal took the view that any time spent on international travel and traveling to and from the airport is part of the worker’s working hours. Therefore, the days spent traveling abroad or returning to Spain must be included in the number of days worked abroad for the purpose of calculating the exemption.

On another note, the tribunal concluded that the base for calculating the exemption cannot include amounts received in respect of health insurance, childcare, meals, transport, etc., because these amounts are already tax exempt in their own right.

 

Personal income tax

Tax returns may be filed jointly with descendants by one of the parents where a court order has already been issued with pre-divorce injunctive remedies

Madrid Regional Economic-Administrative Tribunal. Decision of February 25, 2019

The Personal Income Tax Law sets out more than one different type of family unit. Where a marriage has been dissolved, the family unit consists of the father or mother and any offspring that live with either of them who are minors, or are of legal age and are incapacitated persons entitled to extended or reinstated parental guardianship. The members of a family unit are allowed to file joint tax returns.

In the case examined by the Madrid regional tribunal, the tax authorities had not allowed the joint filing option for one of the parents with their offspring because on the due date for the tax there was no record that they were separated or divorced. On that date there was only a court order for pre-divorce injunctive remedies assigning guardianship and custody of the offspring to the taxpayer.

The court concluded against this that although the court order for pre-divorce injunctive remedies does not dissolve the marriage it does confirm legal separation of the spouses. Therefore from that time the family unit no longer consists of both spouses and any offspring, instead it is only one of the spouses and the descendants living with that spouse. 

 

VAT

Clarification of how to calculate the time limits for decreasing charged amounts of VAT

Central Economic-Administrative Tribunal Decision of June 25, 2019

In this decision TEAC examined the timeframe for altering the VAT taxable amount in the cases in article 80 of the VAT Law. To do this it referred to the time limit set out in article 89 for the correction of charged amounts of VAT.

Namely by applying the supreme court’s theory adopted in a judgment rendered on February 5, 2018 (appeal 646/2017), TEAC concluded that:

1. The length of time available to the taxable person for altering the taxable amount is the standard four-year period running from when the tax became chargeable on the transaction or from when the circumstances under article 80 giving rise to the alteration occur.
2. If the alteration implies a decrease in the VAT amounts, then the taxpayer has one year, after it has altered the taxable amount within that four-year period, in which to correct its tax liability on the relevant return. In other words, in these cases, the total period is 4 plus 1 (four years to alter the taxable amount and an additional year to correct the return).
3. This does not prevent the option to apply alternatively for a refund procedure for incorrect payments (within the statute of limitations). In this case the total period is four years.

 

Transfer and stamp tax

The partition needed to terminate undivided ownership is not subject to stamp tax

Central Economic-Administrative Tribunal Decision of July 11, 2019

The Supreme Court concluded in a judgment rendered on November 12, 1998 that where the horizontal division of a property and termination of the condominium arrangement are both completed at the same time in a single document, the right to charge stamp tax does not arise twice, if the horizontal division is unavoidable to terminate the condominium arrangement.

TEAC adopted this view in a decision dated July 11, 2019. It specified, however, that where the partition is not unavoidable for termination of the condominium arrangement and is desirable or necessary for other purposes, that double right to charge stamp tax does arise.

 

Transfer and stamp tax

Autonomous community authorities cannot question requirements for tax neutrality regime

Central Economic-Administrative Tribunal Decision of July 11, 2019

Until December 26, 2008, the Transfer and Stamp Tax Law allowed an exemption for restructuring transactions if the tax neutrality regime was elected. Election of this regime had to be notified to the (central government) authority responsible for corporate income tax or personal income tax. The exemption has since been broadened to apply to all restructuring transactions, even if the neutrality regime has not been elected.

The case examined by TEAC in this decision related to a period when the exemption was conditional on the neutrality regime being claimed. On this occasion, the autonomous community authorities had disallowed the transfer and stamp tax exemption because, in their opinion, the neutrality regime had not been validly elected because there were no economic reasons for performing the transaction.

TEAC concluded against this that the autonomous community authorities did not have the authority to examine the neutrality regime other than to check that election of this regime was notified to the central government authorities. If that notification was made and the central government authorities did not dispute election of the neutrality regime, the transfer and stamp tax exemption cannot be denied.

 

Inheritance tax

TEAC allows transfers upon death to residents of third states to benefit from inheritance tax relief and reductions under autonomous community legislation

Central Economic-Administrative Tribunal Decision of September 16, 2019

A Swiss tax resident filed an inheritance tax return in which it applied the central government legislation. Later they requested a correction of the return because they considered that the CJEU's conclusion in its judgment on September 3, 2014 allowed them to apply the more favorable legislation of an autonomous community. That request was denied because the taxpayer was not resident in an EU country or in the European Economic Area.

Against this the TEAC upheld the interested party’s petition because in its opinion the CJEU’s case law also applies to residents of third countries.

This view has already been accepted by the Directorate General for Taxes in various binding resolutions (among others, number V2113-19, of August 12, 2019) and earlier by the Supreme Court in several judgments.

 

Inheritance and gift tax

Satisfaction of the “family business” requirements must occur at the time of the gift

Central Economic-Administrative Tribunal Decision of June 18, 2019

Gifts of family businesses benefit from a reduction to the taxable amount if a number of requirements are satisfied. Among others, the company transferred as a gift must carry on an economic activity.

In the case examined by TEAC, the tax authorities had rejected the reduction because they considered this requirement had not been satisfied. Namely, they considered it had not been evidenced that for the property leasing business carried on by the company the requirements of having “premises and an employee” were satisfied on December 31 in the year the gift was made. Proof had been provided, however, that those requirements were satisfied on the date of the gift.

The tribunal concluded in the taxpayer’s favor because it considered that the relevant time for satisfaction of the requirements to claim the reduction is when the gift itself was made.

TEAC has accordingly extended the theory determined by the Supreme Court in a judgment rendered on December 16, 2013 for scenarios involving transfers of family businesses upon death. In that judgment, the Supreme Court concluded that satisfaction of the requirement related to remuneration for management activities in a scenario where they are carried on by a person other than the deceased, must take place on the date the tax falls due.

 

Cadastral values

Comparative methods for appraising values in Barcelona partially set aside due to determining higher land value for 3-star or higher hotels

Central Economic-Administrative Tribunal Decision of July 11, 2019

The comparative methods for appraising values in Barcelona approved to take effect in 2018 determine a specific use category called “others” for appraising the cadastral value of land for 3 star or higher hotels. As a result, the taxable value for these hotels is considerably higher than the value that would have been obtained if that specific use had not been envisaged and, as a result, their cadastral value also.

TEAC explained that the creation of this separate use for hotels of this type is completely unrelated to the urban development characteristics of the area or the cadastral building types. It moreover explained that the comparative methods themselves already contain a “tourism” use, which applies to the other hotel establishments within the Barcelona municipal area. For this reason, it partially set aside the comparative methods for appraising values.

 

Administrative procedure

Tax notifications to capital companies managed by boards of directors must be sent to the board chairperson

Madrid Regional Economic-Administrative Tribunal. Decision of January 28, 2019

At capital companies managed by boards of directors their legal representative is the board acting as a collective body. Accordingly it was asked whether any notifications intended for the board of directors may be deemed validly served where they are sent to any of its members.

The Madrid regional tribunal concluded that under article 235 of the Capital Companies Law, notifications of tax acts addressed to capital companies managed by boards of directors must be sent specifically to the board chairperson. Otherwise they are not valid.

 

Collection procedure

The government cannot correct an absence of reasoning for the decision to deny deferral in the judgment on an appeal for reconsideration

Central Economic-Administrative Tribunal Decision of July 18, 2019

The authorities denied deferral of a tax debt because they considered that the claimant was experiencing structural economic and financial difficulties. The decision dismissing the subsequent appeal for reconsideration reinforced that conclusion for reasons not included in the original denial decision. Among others, it was argued that the fact that the taxpayer had initiated the process for a refinancing agreement was sufficient proof of cash-flow difficulties.

TEAC upheld the appeal because it considered that AEAT cannot, in an appeal for reconsideration proceeding, try to correct the absence of reasoning in the denial decision.

The tribunal added that in any event the fact alone of initiating the process for a refinancing agreement, an advance proposal for an arrangement, or an insolvency proceeding cannot in itself give rise to denial of the deferral on the ground of “structural cash flow difficulties”.

As a result, TEAC ordered the proceedings to be rolled back for the authorities to issue a new correctly reasoned decision.

 

Collection procedure

Enforced collection order is void if the assessment giving rise to it has not been notified

Murcia Regional Economic-Administrative Tribunal. Decision of March 29, 2019

A taxpayer filed a personal income tax return requesting the offset of a tax payment against a refund due on his spouse's return. The tax authorities considered that the requirements for this offset had not been satisfied and rendered an enforced collection order for the outstanding amount.

The Murcia regional tribunal rendered this enforced collection order void because it considered that the authorities’ procedure should have been as follows:

1. Issue a provisional assessment determining why the requirements for the offset had not been satisfied (or not been evidenced).
2. Notify the assessment.
3. Initiate an enforced collection procedure, if necessary.

There is accordingly no justification for considering that the fact of filing a personal income tax return alone means acknowledgement of the debt without issuing a provisional assessment; and therefore an enforcement procedure cannot be initiated without that assessment.