Tax Newsletter - February 2020 | Decisions
Personal income tax
The reduction for rental of a dwelling is applicable regardless of its characterization in the Urban Leasehold Law
Catalan Regional Economic-Administrative Tribunal. Decision of August 22, 2019
The Personal Income Tax Law allows a 60% reduction for income from real estate obtained by leasing residential properties.
In the case examined in this decision the taxpayer had two properties which it had leased (in each case) for two consecutive periods shorter than a year; so under the Urban Leasehold Law (LAU) the agreements had to be characterized as “nonresidential” lease agreements. For that reason, the tax auditors argued that they did not give entitlement to that reduction.
The Catalan Regional Economic and Administrative Tribunal, however, found that they were eligible for the reduction. It affirmed that the Personal Income Tax Law article containing the reduction does not make any reference to the LAU; and that therefore the determining factor is the actual and proven use of the properties. In this case, the taxable person had provided evidence (as acknowledged by the tribunal) that the properties had been leased consecutively to the same lessees, though under lease agreements for 11 month terms (which implied they had “lived” in the properties for 22 months). This evidenced that the properties did not satisfy a temporary need of the lessees, but amounted to their principal residence.
Inheritance and gift tax
A reduction recognized in a procedure commenced as a result of a return may be questioned in a later audit
Central Economic-Administrative Tribunal Decision of January 21, 2020
As a general rule taxpayers may report their tax liability by filing a self-assessment return; or file the necessary documents for the tax authorities to issue an assessment.
In the case analyzed in this decision, the heirs elected the second alternative. Namely they filed a list of the property and rights in the estate and made a written request for certain specific reductions (in respect of acquisition of shares in family businesses and of principal residence). The tax authorities made the relevant provisional assessment including the securities reported by the heirs and made the requested reductions.
Later, the tax authorities commenced an audit in which they questioned the values given to the assets, together with the right to make the reduction relating to the inherited shares.
The Asturias TEAR set aside the assessment that had been issued due to considering that the procedure initiated as a result of the filed documents and completed by issuing a provisional assessment had precluding effects.
Against the decision of the Asturias TEAR, the tax authorities filed an appeal to TEAC which set it aside in view of the interpretation determined by the Supreme Court in its judgment of May 31, 2019 (cassation appeal 1215/2018). TEAC concluded as follows:
(a) The recognition or acceptance (even if implied) of the reductions in the provisional assessment means that tax auditors cannot later examine satisfaction of the statutory requirements laid down for claiming those tax benefits, in that the tax authorities had right from the start all the information relating to satisfaction of the requirements that were conditions for those tax benefits and these were recognized by the authorities in the provisional assessment.
(b) The only way that the conclusion reached in the procedure commenced as a result of a return could be changed is if in the later audit new facts or circumstances are found resulting from activities other than those performed and specified in the provisional assessment ending the procedure commenced as a result of a return (with the filing of documents by the taxpayers). Finding otherwise would be contrary to the principle of legal certainty.
Inheritance and gift tax
Reduction for principal residence under Galician legislation must be requested in voluntary period
Galician Regional Economic-Administrative Tribunal. Decision of February 21, 2019
Acquisition of the principal residence by inheritance gives entitlement to a reduction in inheritance tax in the autonomous community of Galicia, which is more beneficial than the reduction allowed in central government legislation. To be able to claim this reduction the taxpayer must request it within the statutory filing period for the tax.
In the case examined in this decision, the taxpayer forgot to request the reduction in that period, and, after realizing the error, requested (outside the time limit) correction of the self-assessment. The Galicia TEAR disallowed the right to make the correction in the following terms:
(a) We are faced with an essential requirement, due to being expressly laid down in the autonomous community legislation. It must therefore be met in the voluntary period.
(b) If the autonomous community reduction is not requested within the time limit, the central government reduction may be claimed. In this case, if in the self-assessment filed in the voluntary period the central government reduction was not claimed, the self-assessment may be corrected within the statute of limitations period, because central government law and regulations do not stipulated a time period for making the request.
Tax on economic activities
Commencement of a residential property rental business is exempt from the tax on economic activities, even if the company had previously been renting industrial premises
Galician Regional Economic-Administrative Tribunal. Decision of May 23, 2019
The law on the tax on economic activities allows an exemption for the first two years an economic activity is conducted within Spain.
In the case examined in this decision, the Galician TEAR recognized eligibility for this exemption for an entity that had been carrying on a rental business for industrial premises, and later started to conduct a rental business for residential properties, which is contained in a separate caption of the classifications for the tax on economic activities. The tribunal held that, insofar as the taxpayer has to file a separate return for notification of commencement of the new activity in a different caption to the one for its previous activity, it may be considered that these are two different activities and therefore the exemption may be claimed.
Cadastral appraisals
It is not valid to substantiate the construction categories for a building by simply transcribing the comparative methods for appraising values
Madrid Regional Economic-Administrative Tribunal. Decision of December 20, 2019
The cadastral appraisal of the construction of a building is determined in part by reference to the construction category assigned to it. For that reason, the assignment of one category or another, which depends in turn on the quality of the structure itself, must be suitably substantiated by the Cadaster.
The Madrid TEAR ruled in this decision to set aside the cadastral appraisal of a building on the basis that the category assigned to its structure had not been suitably substantiated. In particular, the court specified that it is not valid to substantiate those categories with a transcription of the comparative methods for appraising values and a general mention of the catalog of types of constructions accompanying those comparative methods.
Tax resolutions
Requests for resolution submitted by third parties to the DGT after an audit has commenced have binding effects for the person being audited
Central Economic-Administrative Tribunal Decision of December 18, 2019
AEAT adjusted a taxpayer’s tax position. The taxpayer filed the relevant economic-administrative claim with TEAC arguing that the performed assessment had to be set aside because its actions were not consistent with the DGT's conclusions in a reply to a resolution request submitted by an association, of which it was not a member, and which was given before the assessment ending the audit of its tax position had been issued.
TEAC upheld the taxpayer’s claim and upheld the binding effects of that resolution, on the basis of the following observations:
(a) The bodies for application of taxes are bound by the interpretation contained in a reply to a resolution request submitted to the DGT, provided that the facts and circumstances relating to the person with tax obligations are the same as those included in the reply to the resolution request. TEAC had confirmed their sameness in the examined case.
(b) In any event, the body for application of taxes should have substantiated why it was departing from the DGT’s interpretation and the reasons (whether factual or legal) why it considered the reply to the resolution request incorrect, although it failed to do so.
(c) While it is true that article 89.2 of the General Taxation Law determines that replies to resolution requests do not have binding effects where they concern issues related to the subject-matter or handling of a procedure, appeal or claim commenced before the request, TEAC considers that this article is only applicable when it is the requesting party (or a member of the requesting entity in the case of an association, for example) that is being audited.
In the examined case, the request was submitted after the audit had begun, but the audited entity was not a member of the requesting association, so TEAC held that the provision in article 89.2 was not applicable and therefore the binding effect of the resolution could not be removed.
Management procedure
Waiver of refund in favor of the public treasury cannot be corrected
Catalan Regional Economic-Administrative Tribunal. Decision of April 8, 2019
A taxpayer filed a personal income tax self-assessment return in which by mistake it waived the refund due to it. A while later (after the voluntary filing period had ended) it applied for correction of its self-assessment to amend that error. The tax authorities rejected this request by arguing that the waiver of the refund in favor of the public treasury is a tax option which, under article 119.3 of the General Taxation Law, may only be corrected within the voluntary filing period for the return.
The Catalan TEAR, however, concluded that a waiver of a refund is only classifiable as error, not as the election of a tax option, therefore the requested correction must be granted.
Special application for judicial review of final decisions
A special application for judicial review of final decision is not admissible where documents of material value could have been produced earlier
Central Economic-Administrative Tribunal. Decision of December 18, 2019
A taxpayer filed a request for a refund of incorrect payments in relation to the tax on retail sales of certain oil and gas products which was refused due to the absence of documents evidencing that the taxable person had charged the tax on the invoice. The decision became final. Against the decision, the party with tax obligations lodged a special application for judicial review of final decisions, in which it produced correcting invoices recording that charge.
TEAC concluded that the produced correction invoices do not qualify as material documents produced subsequently or unable to be produced that evidence an error in the challenged decision; and this insofar as they could and should have been filed in the relevant tax procedure, because they were accessible to the taxpayer.
According to TEAC, what the taxpayer is seeking is to use the special application for judicial review of final decisions after the end of the ordinary application period, for the purposes of requesting a fresh review of the facts, which is not allowable.
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