Tax Newsletter - June 2018 | Judgments, decisions and rulings

Corporate income tax

Net operating loss may be transferred with spun-off assets in partial spin-off

Directorate-General for Taxes. Ruling V1129-18, of April 30, 2018

The DGT reiterated in this ruling that in partial spin-offs under the neutrality regime a net operating loss (NOL) may be transferred to the beneficiary company. If it cannot be determined which of its activities gave rise to the NOL (whether the spun-off activity or any of the activities remaining at the company performing the spin-off), a proportional distribution by reference to the market value or carrying amount of each activity may be allowed.

Corporate income tax

Shareholders resident in tax havens not allowed to elect neutrality rules

Directorate-General for Taxes. Rulings V1016-18 and V1029-18, of April 20 and 24 2017

In business reorganizations subject to elected neutrality rules, one of the main effects is the deferral of tax on the gains arising for both the companies and the shareholders owning them. The DGT recalled, however, that shareholders resident in tax havens are not allowed to benefit from those rules.

Therefore, in a share exchange the gain arising on contributions made by shareholders resident in tax havens is taxable. The shareholders resident elsewhere are not adversely affected, however, if from the ownership interest attributable only to these shareholders the beneficiary company obtains a majority of the voting rights at the acquired company.  For these purposes, the ownership interests of the shareholders resident in tax havens will not be counted to determine the voting rights acquired from the other shareholders in the exchange. 

Corporate income tax 

Refund of excess contributions must be reported in the year in which the right to that refund is recognized

Directorate General for Taxes. Ruling V0878-18, of April 3, 2018

The refunds obtained by a corporate income taxpayer must be recognized for accounting purposes as revenue and, therefore, since tax rules do not determine otherwise, must be taxed. A recurring doubt, however, is whether these refunds must be taxed in the year to which they relate, or in the year the refund is obtained.

In this ruling request, concerning a refund of excess social security contributions, the DGT affirmed that the taxation of refunded amounts must occur in the fiscal year in which the entitlement to a refund is recognized.

Personal income tax

The entire cost value of the dwellings obtained under a leasehold may be depreciated

Directorate-General for Taxes. Ruling V0927-18, of April 10, 2018

The requesting entity is the owner of a dwelling in the United Kingdom under a leasehold, whereby it only owns the building, whereas the land has another owner. The dwelling is rented.

In these circumstances, the DGT considers that the entire cost value may be depreciated, because it may be attributed in full to the building.

Nonresident income tax

Nonresidents may not apply the timing of recognition rule to forward transactions

Directorate-General for Taxes. Ruling V0896-18, of April 6, 2018

The personal income tax legislation allows taxpayers to recognize the gains on forward transactions (in which all or part of the price is received in successive payments, if the period between the delivery and the maturity of the last payment is longer than a year) as and when the related amounts fall due for collection.

The nonresident income tax legislation often applies the provisions in the personal income tax legislation. The DGT has underlined, however, that there are no express provisions from which it may be construed that the timing of recognition rule mentioned above may be applied to forward transactions, nor is there a specific rule in the nonresident income tax legislation on this matter. Therefore, capital gains obtained in a forward transaction subject to nonresident income tax have to be recognized on an accrual basis.

Transfer and stamp tax

Stamp tax has to be paid on excess amounts allocated in dissolution of joint property entity even if the awarded asset is indivisible

Directorate-General for Taxes. Ruling V0952-18, of April 11, 2018

The interpretation used by the DGT to date was that in the dissolution of a condominium formed by indivisible assets only stamp tax (not transfer tax) arose on that dissolution, and taxable excess allocations were not allowed.

The DGT has had a change of mind in this ruling by considering that in this case the excess allocation satisfies the requirements laid down in the law to be taxable for stamp tax purposes.

Tax on increase in urban land value 

In transfers of properties acquired by usucaption, the holding period is 20 years maximum

Directorate-General for Taxes. Ruling V1014-18, of April 19, 2017

Acquisition by extraordinary usucaption occurs if the property has been possessed for at least 30 years. Since this type of acquisition does not imply transfer, however, (under civil law it is an “original” acquisition) the tax on increase in urban land value does not arise.

In a subsequent transfer of the property, therefore, the holding period is not calculated by reference to the date of acquisition by usucaption, but instead the date of the previous transaction subject to the tax, and therefore because it must have occurred within a period shorter than 30 years, the generation period to be taken will be 20 years maximum.

Tax on increase in urban land value

Constitutional court decisions contrary to the tax not applicable to acquisition by inheritance

Directorate-General for Taxes. Ruling 0022-18, of April 17, 2018

The Constitutional Court has concluded in various judgments that the tax on increase in urban land value is void because it fails to observe the taxpayer’s economic capacity. However, says the DGT in a questionable interpretation, this case law is not applicable to inheritance because the Constitutional Court has only examined sale transactions, in which the taxable person is the transferor, whereas in inheritances the taxable person is the transferee (and the taxable economic capacity is different in each case).

Collection procedure

To hold the main debtor in default the tax authorities must determine whether there are immediately realizable assets

Central Economic-Administrative Tribunal. Decision of May 30, 2018

In a declaratory proceeding regarding secondary liability, TEAC determined that it must be interpreted that, for a declaration that the main debtor is in default, the tax authority must determine whether or not there are assets and whether such assets are immediately realizable.

Only then can the tax authorities declare that the debtor is in full or partial default, although the collection bodies are still entitled to monitor whether debtor returns to solvency, and if so, reinstate the claims declared irrecoverable.

Collection procedure

If it is evidenced that the main debtor had assets, the decision declaring secondary liability may be held void

Central Economic-Administrative Tribunal. Decision of April 26, 2018

According to TEAC, secondary liability may be declared even if there are enforceable or transferable assets at the main debtor. In these cases, however, the legality of the decision to shift liability may be questioned if it was justified on the basis of the absence of assets at the debtor, and fault on the part of the person liable was found to exist, but later on it is verified that the debtor had indeed assets.