Tax Newsletter - April 2020 | Decisions

Spain - 08 / 05 / 2020

Corporate income tax

The chosen depreciation method for specific assets has to be used until those assets have been depreciated in full, transferred or forfeited

Central Economic-Administrative Tribunal. Decision of January 16, 2020

The absorbing company in a merger used a depreciation method for used property on certain acquired assets, even though the absorbed company had originally been using the straight-line method based on officially approved tables.

TEAC recalled that it is not allowed to use different depreciation methods simultaneously or successively on the same asset (except in exceptional cases and their special nature must be supported in the notes to financial statements); this is under the so-called rule on continuity of depreciation.

That rule determines that where a taxable person has chosen a given depreciation method for certain specific assets, it must continue to be used until the assets have been depreciated in full, transferred or forfeited.

TEAC concluded that this rule is equally applicable (though with a few adjustments) in a business merger, meaning that the absorbing company must retain the depreciation methods used by the absorbed company, for each type of asset.

Personal income tax

Before December 31, 2015 “minimum amortization” did not exist for the purpose of reducing the acquisition value of intangibles with indefinite useful lives used in an economic activity

Central Economic-Administrative Tribunal. Decision of February 10, 2020

The issue concerned whether the acquisition value of an intangible asset with an indefinite useful life used in an economic activity must be calculated by reference to its minimum amortization, even if the asset has not actually been amortized on the taxpayer’s personal income tax return.

TEAC held that, under the legislation in force before January 1, 2016 (applicable to the case at issue), intangible assets with indefinite useful lives could not be amortized for tax purposes. Even though an impairment loss on them was tax deductible, that impairment loss could not be treated as “minimum amortization”.

On that basis, it concluded that, for personal income taxpayers that used the direct assessment method to calculate their income from economic activities, before December 31, 2015 no “minimum amortization” existed of intangible assets with indefinite useful lives for the purpose of quantifying their acquisition value.

VAT

Input VAT paid by holding companies is deductible if it relates to activities with billed fees

Central Economic-Administrative Tribunal. Decision of February 26, 2020

The claimant was a mixed activity holding company owning shares in and providing services to certain subsidiaries. In the reassessed year it only billed one of its subsidiaries.

TEAC analyzed the CJEU's case law on the right to a VAT refund at holding companies, from which it is inferable that companies only supplying services to some subsidiaries, but not to others, will have a limit placed on their entitlement to a reduction.

It therefore concluded that the claimant carried on an economic activity due to the supply of remunerated services to one of its subsidiaries and another non-economic activity related to holding the investees to which it does not bill services. Therefore, the deduction of input VAT on the overheads it has incurred to carry on its activity will have to be done using an allocation method that takes into account the economic activity and non-economic activity carried on by the company.

It held however that the input VAT on services and that on the costs billed in relation to directors’ compensation were not deductible, due to not being determined clearly in the bylaws.

Collection procedure

Failure to notify an attachment order to the co-owners of the attached assets does not render the order null and void

Central Economic-Administrative Tribunal. Decision of January 28, 2020

The tax authorities served on a taxpayer an interlocutory order initiating enforced collection proceedings regarding a wealth tax debt. Because the debtor failed to pay the enforced debt within the payment period, the tax authorities served an attachment notice on the debtor in relation to movable assets. Against that attachment notice, the debtor filed an economic-administrative claim before the Asturias Regional Economic-Administrative Tribunal (TEAR) pleading, briefly, that it had applied for split payment of the debt and a decision had not been delivered on that application. The claim was upheld by the Asturias TEAR on a ground not pleaded by the claimant. Namely, the Asturias TEAR set aside the attachment notice on the basis that in relation to three of the four attached movable assets (current accounts and a mutual fund) there were co-owners that had not received the required notification.

Against the decision of the Asturias TEAR, the tax authorities filed a special appeal for a ruling on a point of law with TEAC which was partially upheld. In its decision, TEAC determined the following interpretation:

a) It is correct for the Asturias TEAR to analyze by its own decision issues that were not pleaded by the claimant, because they stemmed from documents in the administrative case file and did not place the claimant in a worse position.

b) It is true that the attachment notice should have been served on the persons affected by the procedure itself, not just on the taxpayer. A distinction is nevertheless needed between the validity and effectiveness of the administrative measure; the first refers to the content of the measure, and the second, to the legal effects it has as against third parties.

Seen in these terms, the notification of an attachment notice to the co-owners of the attached assets may be a necessary condition for its effectiveness, but not for its validity. In other words, the validity of an attachment will depend on its content, no matter how it was notified. Therefore, the absence of the mentioned notification does not make the notice of attachment is null and void.

c) Moreover, the denial of due process rights caused by failure to notify the attachment notice may be pleaded in relation to measures immediately following the enforcement proceeding.

Audit procedure

Absence of reasoning and valuation in a report cannot be remedied in the assessment decision

Murcia Regional Economic-Administrative Tribunal. Decision of July 31, 2019

A company deducted a sum in respect of compensation paid to its directors on the basis that their work was not confined to strict management of the company, because they also carry out marketing tasks that resulted in increased sales for the company.

In the report signed with disagreement, the auditors disallowed deduction of this expense in the amount that exceeded the compensation paid to one of the sales individuals at the company. According to the auditors, this last amount of compensation represented the value that the company gave to the director’s marketing work, so any excess over that compensation amounted to a gift, and as such, a nondeductible expense. Although a pricing adjustment was made, the tax authorities did not use any of the pricing methods specified in article 18.4 of the Corporate Income Tax Law for pricing controlled transactions.

Later, the assessment decision confirmed the proposed assessment contained in the report, although based on the comparable uncontrolled price method under article 18.4.a) of the law, a pricing method that had not been used in the report signed with disagreement.

Murcia TEAR voided the assessment because it considered that reasoning and pricing defects in the report cannot simply be altered in the assessment decision. It nevertheless ordered a rollback of procedure to the point before the report was issued so that the tax authorities could provide proper reasoning.

Enforcement procedure

Late-payment interest following the suspension of penalties in the judicial review jurisdiction is calculated from the day after the end of the voluntary payment period commenced on notification of the decision

Central Economic-Administrative Tribunal. Decision of March 9, 2020

The tribunal examined the start and end dates of periods that must be taken into account to calculate the late-payment interest arising from penalties that have been suspended in the judicial review jurisdiction; and whether the period should be reduced by the number of days exceeding the two month period the authorities have to enforce the ruling in the judgment.

TEAC determined the following interpretation:

a) Late-payment interest on penalties falls due from the end of the voluntary payment period commenced on notification of the dismissal decision that exhausts the administrative jurisdiction, regardless of whether there has been suspension in the judicial jurisdiction. Therefore, in contradiction with TEAC’s own earlier interpretation, the date of the judicial decision on suspension is only relevant for determining how long the suspension ordered in the administrative jurisdiction is maintained, but has no effect regarding the commencement of the period in which late-payment interest on suspended penalties falls due.

b) The period for the calculation of late-payment interest due during the suspension will end on the last day of the voluntary payment period commenced on notification of the end of the suspension or the day on which payment takes place within that period.

c) The adoption and notification of the express decision to lift the suspension beyond the specified two month period will determine that late-payment interest may not be charged in respect of the length of that delay.

Requests for preliminary rulings

Economic-administrative tribunals cannot submit requests for preliminary rulings, but they have an obligation to ensure that EU law is applied

Central Economic-Administrative Tribunal. Decision of February 26, 2020

In the context of a filed economic-administrative claim, a taxpayer asked for a preliminary ruling to be requested, and secondarily, for the claim proceeding to be suspended until a reply had been obtained to the request submitted by Valencia High Court in relation to the same subject at issue.

In relation to the first request, TEAC recalled that the Court of Justice of the European Union concluded in a judgment delivered on January 21, 2020 (case C-274/14) (Tax Newsletter - January 2020) that economic-administrative tribunals do not have the jurisdiction to submit a request for a preliminary ruling due to the absence of impartiality and independence.

It clarified however that this does not release these tribunals from the obligation to ensure that EU law is applied. Therefore, they have a duty not to apply national provisions that are contrary to EU law, because that obligation is incumbent on all national authorities not just the judicial authorities.

Lastly, TEAC reiterated that a suspension of the economic-administrative claim could not be ordered because the legislation only allows a proceeding to be suspended if the request for a preliminary ruling was submitted by the economic-administrative tribunals themselves (Tax Newsletter - September 2019).