Not electing the special inbound expatriates regime within the time limit implies that the standard personal income tax regime has been chosen
A recent supreme court judgment held that if a taxpayer fails to notify on time the decision to elect the special inbound expatriates regime, it is considered that the standard regime has been chosen. This decision recalled the importance of acting with extreme caution when deciding over tax options on tax returns.
The regime for workers sent to Spain allows taxpayers who become Spanish resident to be taxed as nonresidents (subject to a few special rules) in the period in which they acquire their tax residence and in the following five years. Currently this special regime is subject to various requirements and among them the taxpayer has to give notice of election of the regime. This notice must be given within six months from the commencement date of the activity appearing in the notification to the social security authorities in Spain or in the document allowing the taxpayer to stay with the social security legislation of their home country.
This regime has been applicable since January 1, 2004, although the form for electing the regime was approved by ministerial order a few months later. For this reason, it was specified then that anyone who had acquired tax residence in Spain in 2004 or acquires it in 2005 could elect this special regime in the two months following publication of this order (in other words, within two months running from June 11, 2014).
In judgment 1102/2020, delivered on May 18, 2020, the Supreme Court examined the case of a taxpayer who gave notice of his election longer than two months after June 11, 2004; and concluded by denying the right to the special regime. The court found as follows:
a) That two-month time limit was a mandatory requirement for claiming the special regime not simply a procedural requirement.
b) Due to being a requirement defined in the law as an “option”, the taxpayer cannot change it after the end of the time period determined in the law, as specified article 119.3 of the General Taxation Law. This article states that tax options cannot be corrected after the end of the fining period for the return.
c) In short, by not filing the notice on time, it is “as if” the taxpayer had elected to apply the standard personal income tax regime.
The court would predictably reach the same conclusion in relation to the current six-month period mentioned above.
This judgment, together with many others on the tax options rules (which show a very flexible interpretation of the definition of “option”), make it advisable to act great caution when making decisions on tax returns.
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