Tax Newsletter - April 2020 | Resolution requests
Corporate income tax
Know-how cannot benefit from the patent box
Directorate General for Taxes. Resolution V0273-20 of February 5, 2020
A company submitted an issue for resolution concerning the transfer of know-how to a newly created related company and to independent third companies.
The DGT concluded in this resolution that the revenues obtained from the transfer cannot benefit from the patent box, a reduction for transfers of intangible assets defined in article 23 of the Corporate Income Tax Law. According to the DGT, only transfers of the intangible assets listed in paragraph one of that article are eligible for the reduction, and know-how is not one of them.
Nonresident income tax
Mediation services are business profits
Directorate General for Taxes. Resolution V0337-20 of February 14, 2020
A company having its tax domicile in Spain received a supply of services by a Uruguayan company consisting of mediation with future clients and suppliers.
According to the DGT:
a) The income to be received by the Uruguayan company is characterized as a business profit, and as such is only taxable in Uruguay as determined by the tax treaty signed with that country.
b) As a result, the Spanish company will not be required to withhold tax from any fees that will be paid for the mediation services. It will however have to file a negative withholdings return (form 216) and the relevant annual summary (form 296).
c) In any event, the recipient of the income will have to provide evidence of its tax residence by producing a certificate of tax residence issued by the Uruguay tax authorities and make that certificate accessible to the payer, which will be valid for one year. The payer will have to keep the certificate and make it accessible to the tax authorities if they so request.
Personal income tax
The reported value audited by the tax authorities is the acquisition value for the purposes of a future transfer
Directorate General for Taxes. Resolution V0468-20 of February 27, 2020
In an audit examining a property sale made by an individual, it was concluded that the value of the transferred property was higher than its reported value.
According to the DGT, this audited higher value will be the acquisition value for the purchaser, for the purposes of a future transfer, as concluded at the Supreme Court in a judgment delivered on September 21, 2015.
Personal income tax
Forgiveness of a loan provided by a company to its shareholder is to be treated as a dividend
Directorate General for Taxes. Resolution V0350-20 of February 14, 2020
A limited liability company had provided a loan to one of its shareholders and was considering forgiving it.
The DGT took the view that, if forgiveness of the loan does not amount to a form of consideration for the supply of a service or good made by the shareholder, the income generated by that forgiveness must be characterized as income from movable capital arising from investment in equity, and is to be included in the savings taxable income. This income is subject to withholding tax.
VAT
Treatment of penalties for breach of service level terms
Directorate General for Taxes. Resolution of January 21, 2020
The examined case concerned a company that signs contracts with clients under which it provides back office services related to certain internal processes. Those contracts stipulate certain “service level” terms, such that, where that service level is not observed as a result of errors or delays, the company faces penalties which are charged on the invoice following the date the errors or delays are identified. It is stipulated contractually that those penalties are not for restitution purposes, so they do not replace or reduce any damages for losses arising for the client.
It was asked whether these penalties should reduce the taxable amount of the taxed transaction performed by the requesting company for its clients or whether, conversely, they should be treated as separate obligations amounting to indemnification not subject to VAT.
The DGT concluded as follows:
a) The purpose of these penalties is as a deterrent in the form of pressure to secure proper compliance by the company, such that certain types of breaches reduce the amount payable by the client. That deterrent nature means they do not amount to indemnification, because their purpose is not restitution for a loss nor are they graded or quantified to make good a loss. For that reason, the contract sets them apart from damages.
b) These penalties, therefore, form an inseparable part of the service itself and, therefore, of the taxable amount of the transaction. As a result, the price of the back office services is determined by reference to those penalties (which reduce that price).
Transfer and stamp tax
The delivery of properties to shareholders in a capital reduction is subject to capital tax only
Directorate General for Taxes. Resolution V0451-20 of February 26, 2018
A company owning two properties owed sums of money to its two shareholders. It was intended to discharge the debt by delivering the properties owned by the company in two successive transactions: (i) a capital increase with a debt-for-equity swap by converting the shareholders’ debts into shares in the company; (ii) a capital reduction with repayment of the shareholders’ contributions, by transferring the two described properties.
The DGT concluded as follows:
a) The capital increase is subject to but exempt from capital tax (a type of transfer tax).
b) The capital reduction is also subject to capital tax but not exempt, being taxable at 1%. The taxable persons are the shareholders and the taxable amount is the actual value of the properties.
c) Because the transactions are subject to capital tax (even though one is exempt) they cannot be subject to any other type of transfer tax (tax on transfers for a consideration) or stamp tax, because they are mutually exclusive.
Tax on economic activities
Promoting properties to be leased is only taxable in respect of their rental
Directorate General for Taxes. Resolution V0226-20 of February 3, 2020
The requesting party, a shareholder and director of a company, intended to develop an industrial building on a piece of land they owned and subsequently to lease that building to the company. It was asked under which tax on economic activities captions the activity should be notified.
The DGT concluded, first, that the requesting party was not required to notify the property development activity for the purpose of the tax on economic activities, because the development is not carried out to participate in the production or distribution of goods or services. It added that, if a third party is hired for its construction and the requesting party does not undertake technical management of the project, the construction activity will not have to be notified either.
Once the construction of the property has finished and the property starts to be rented, it must be notified under caption 861.2 of the tax on economic activities classifications, which relates to property leasing.
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