Tax Newsletter - January 2020 | Resolutions by the Directorate General for Taxes

Corporate income tax

DGT examines various important issues in relation to offsetting tax losses

Directorate General for Taxes. Resolution V3284-19 of November 28, 2019

All the shares in a company with tax loss carryforwards generated until 2012 were transferred to a shareholder that had not invested in the company before the transfer. The issue submitted for resolution concerned the regime for the offset of those tax losses in or after 2015 as a result of that change of control.

The DGT concluded that, since the transfer took place before the Corporate Income Tax Law (LIS) came into force, the offset was subject to the regime restricting the offset of tax loss carryforwards in article 25.2 of the previous law (TRLIS), applicable until fiscal years that began on or after January 1 2015.

With respect to proof of the existence and accuracy of the tax loss carryforwards sought to be offset, there are two separate periods:

1. The first is the ten-year period running from the filing time limit for the tax period in which the tax loss was generated. In this period, the proof needed by the tax authorities is not constrained by any provisions, therefore the general provisions on means of proof contained in the General Taxation Law apply.
2. The second runs from the end of that 10-year period, and for this period the tax authorities may only see the return for the tax period in which the tax losses were generated and the accounting records correctly filed with the commercial registry.
       
   The DGT added that, the general rules on proof in the General Taxation Law are applicable to the evaluation of these means of proof. And, for these purposes, besides having to be reported on the self-assessment return for the tax period in which they arose and for the period in which they are offset, the tax loss carryforwards also have to be reported in the interim periods. The burden of proving the existence of tax loss carryforwards lies with the taxpayer and failure to report them in those interim periods may be evaluated by the tax authorities under the rules of healthy criticism.

Lastly, the DGT recalled that, under the theory settled by TEAC, the offset of tax loss carryforwards falls within the scope of tax options. Under Article 119 of the General Taxation Law, any options to be exercised, requested or waived with the filing of a return are not allowed to be corrected after the end of the stipulated filing period.

Corporate income tax

Even though the absorbed company has tax loss carryforwards, the merger may have valid economic reasons

Directorate General for Taxes. Resolution V3106-19 of November 6, 2019

Company A is wholly owned by individuals belonging to the same family group. The company’s economic activity consists of acquiring real estate for subsequent lease. The company has always recorded losses, and therefore has generated tax loss carryforwards.

One of A’s shareholders is sole shareholder of company B, which has the same corporate purpose and economic activity as A. Company B, however, has recorded income.

Insofar as the two companies belong to the same family group and one records losses and the other, income, a merger of the companies is being considered to improve the group’s net worth position.

The DGT reiterated in this resolution that the neutrality regime may be elected for this merger because the submitted reasons appear to be valid. The DGT added that the fact of the absorbed company having tax loss carryforwards does not invalidate this conclusion; and underlined in this respect that the merger is to be made between two operating companies and strengthens and improves the net worth position of the post-merger company.

Personal income tax

Shares under bare ownership and under legal ownership are not shares of the same kind

Directorate General for Taxes. Resolution V3113-19 of November 7, 2019

An individual owns various shares in a company under bare ownership and others under legal ownership and intends to sell the shares held under bare ownership.

Under the personal income tax legislation, where there are shares of the same kind, the shares with the earliest acquisition dates are considered to be transferred first.

In this case, however, the shares under bare ownership are not considered to be of the same kind as the shares under legal ownership, because they have different rights attached to them and therefore they have different effects for their owners. As a result, in this case it is the shares under bare ownership that will be considered to be sold, because they are the ones actually sold, regardless of how long the shares under legal ownership have been held.

Personal income tax

The creation of a usufruct right for no consideration in shares gives rise to imputed income unless proven otherwise

Directorate General for Taxes. Resolution V3101-19 of November 5, 2019

The person submitting the issue intends to create for his father, for no consideration, a lifelong usufruct right in 50% of a company’s shares.

The DGT stated that:

1. The creation of a usufruct right is characterized as income from movable capital.
2. In this case, because the transaction is for no consideration, it will give rise to imputed income, unless proven otherwise.
3. The imputed income will be equal to the normal market value, meaning the price that would be agreed between independent parties, again this is so unless it can be proven otherwise.

Wealth tax

An individual resident in Gibraltar is not required to report an investment in a Gibraltar company that indirectly controls real estate in Spain

Directorate General for Taxes. Resolution V3178-19 of November 14, 2019

An individual resident in Gibraltar owns all the shares in a Gibraltar company. This Gibraltar company owns all the shares in a Spanish limited liability company having as its only asset a residential property located in Spain. The limited liability company does not carry on any type of economic activity and it makes the property available to the individual, who uses it as a vacation home.

Nonresident individuals are only subject to wealth tax as nonresident taxpayers, which implies that they are only taxed on the assets and rights that they own which are located, may be exercised or have to be performed, in Spain.

As a result, wrote the DGT, since the requester only directly owns the shares in the Gibraltar company, not any assets and rights located or exercisable in Spain, that individual is not subject to Spanish wealth tax as a nonresident taxpayer.

Inheritance and gift tax

Proof of payment of the tax is needed for a company to be able to deliver registered shares to the heir

Directorate General for Taxes. Resolution V3179-19 of November 15, 2019

A Spanish company’s capital stock is divided into registered shares represented by certificates, and the certificate holders are entered on the share register. One of its shareholders, resident in Germany, has died. The shareholder’s heir is a German individual resident in Canada.

The DGT recalled the following:

1. A non-Spanish resident heir is subject to inheritance and gift tax as a nonresident taxpayer in respect of the acquisition of shares issued by a company formed and resident in Spain and therefore located and exercisable in Spain.
2. The Spanish company is required to ask the heir to provide proof of the payment of inheritance and gift tax or exemption from the tax, before delivering the registered shares and entering them on the share register. Failure to fulfill this duty is a tax infringement subject to a penalty.