Tax Newsletter - October 2018 | Decisions

Personal income tax

Continuous residence test to claim exemption for reinvestment in principal residence must be met from when ownership obtained

Central Economic-Administrative Tribunal (TEAC). Decision of September 18, 2018

To claim the exemption for reinvestment in the principal residence for personal income tax purposes, the transferred property and the acquired property must qualify as the principal residence, for which one of the requirements is that the person must have lived there at least three years.

Specifically, that period in relation to the transferred residence may only be calculated from when that residence was acquired, without including any earlier periods of residence (under a lease or other arrangements).

VAT

Rate applicable to repair work on residential properties caused by insured losses varies according to who is the customer

TEAC decision of September 25, 2018

The tax rate applicable to repair work on residential buildings, depends on who is the customer for the work. Where the customer for the work is the insurance company, the standard rate applies, whereas if the customer is the individual who uses the residence the reduced rate is chargeable.

In the TEAC's opinion, the customer for the work is the individual if the compensation method under the insurance policy is the payment of indemnification by the insurance company. For the insurance company to be the customer for the repair work, the repair or replacement of the damaged item must be substituted for that indemnification. 

Transfer and stamp tax

Stamp tax base in declarations of new construction is construction cost  

Central Economic-Administrative Tribunal. Decisions of September 20 and July 13 2018

The stamp tax base related to deeds for declaration of new construction consists of the actual value of the cost of the new construction that is being declared. This decision raised the issue of what “actual value of the cost of the construction” means.

TEAC concluded that “actual value of the cost of the construction” means how much the construction work actually cost to complete, without having to increase the value of the property according to the value of the new construction placed on the market. Those items (construction cost as opposed to finished property value) are not necessarily the same, insofar as factors such as location or use may have an effect on the value of a property whereas they do not necessarily affect construction cost.

This same interpretation had already been adopted by the Supreme Court in judgments of April 9, 2012 and April 10, 2014.

Special taxes

Forfeiture of right to exemption or to reduced rate in cases of procedural breaches is not automatic

Central Economic-Administrative Tribunal. Decision of September 25, 2018

TEAC adopted in this decision the Supreme Court’s interpretation in its judgment of February 27, 2018 (Tax Newsletter / 22-05-2018) to the effect that a breach of procedural requirements in relation to special taxes does not give rise to automatic forfeiture of the right to an exemption or to a reduced rate, if the party with tax obligations shows that the factual requirements laid down to claim the tax benefit have been satisfied.

In other words, forfeiture of the tax benefit may only occur where the monitoring authorities conclude, from furnished proof, that the products were not used for the purposes that give entitlement to an exemption or to the reduced rate.

Management procedure

TEAC adopts Supreme Court interpretation that assessment of property values cannot consist of increasing cadastral value by multiplier

Central Economic-Administrative Tribunal (TEAC). Decision of September 20, 2018

Following the interpretation determined by the Supreme Court in a judgment rendered on May 23, 2018 (Tax Newsletter - June 2018), TEAC concluded that the assessment method by reference to cadastral values increased by multipliers is not suitable for calculating property values for taxes in which the tax base is determined legally by reference to their actual value (such as inheritance and gift tax and transfer and stamp tax), unless the method is supplemented by carrying out a strictly auditing method directly related to the valued property.

However, after setting aside an assessment due to using that method based on cadastral values, it gave the authorities a second chance, by ordering reversion of the audit so they would be able to issue another assessment.

Information requests

Information requests made to bar associations in relation to members’ fees are lawful

Central Economic-Administrative Tribunal. Decision of September 18, 2018

The tax authorities requested from a bar association specific reports and opinions on their members’ fees in respect of procedures for claiming legal fees and claims in and out of court, and on the determination of legal costs. As a result of not agreeing with the request for information (by considering it was general and indiscriminate and lacked tax relevance), the bar association followed the relevant appeal routes, ending with this decision by TEAC.

TEAC held that the request for information is lawful, because tax relevance may not be questioned, and needs no further explanation or reasoning, given that the sought aim is to facilitate the work of the tax auditors. It underlined in this respect that the members on which information is requested are potential taxpayers and are connected with the bar association by reason of their commercial or economic activity. Moreover, it was determined that the requested information is confined to a specific time period.