Tax Newsletter - June 2019 | Decisions

Corporate Income Tax

Asset values determined by autonomous community authorities are binding on the central government authorities

Central Economic-Administrative Tribunal. Decision of May 14, 2019

The Central Economic-Administrative Tribunal (TEAC) studied a case related to a capital reduction with repayment of contributions, performed by delivering real estate owned by the company. In a later audit, the autonomous community authorities calculated the values of the properties to determine whether transfer and stamp tax had been assessed correctly.

Later, in the course of a corporate income tax audit, the Spanish Tax Agency (AEAT), when verifying the tax consequences arising from that capital reduction, assigned different values to the same properties.

Taking its cue from the interpretation settled by the Supreme Court in judgments of January 15, 2015 and December 9, 2013, TEAC concluded that the values determined by a competent autonomous community authority are binding on the central government authorities. In other words, the central government auditors must observe the values audited by the autonomous community authorities.

Personal Income Tax

For sums paid to replace pension supplements to be multiyear income they must result from a unilateral step by the company 

Central Economic-Administrative Tribunal. Decision of February 14, 2019

As a result of the removal of one of its directors, a company agreed to make annual payments to him in the following years until he reached retirement age; in the following years a pension supplement was to be paid to achieve the same annual amount.

A few years later, the employer and the taxpayer signed a novation instrument terminating that agreement, which replaced the supplement to his retirement pension with a fixed amount paid in a lump sum.

The taxpayer considered that this fixed amount could entitle him to the reduction set out in the Personal Income Tax Law for multiyear income. AEAT adjusted the taxpayer’s income after finding that the reduction was not applicable.

TEAC dismissed the claim filed by the taxpayer for the following reasons:

1. From one angle, it argued (i) that the undertaking to pay a future supplement to the pension was simply an expectation; and (ii) that entitlement to the indemnity payment replacing it arises anew with the novation terminating the previous agreement. For that reason, TEAC held that the income was generated in a period under two years, and therefore, that reduction was not applicable.
2. From another angle, TEAC held that another reason for the reduction not being applicable is that the amount received does not qualify as clearly multiyear income according to the definition in the regulations. Specifically, it held that the case of indefinite compensation or indemnity in respect of salary supplements, pensions or annuities only applies where the payment is made as a result of a unilateral step by the employer which is detrimental to the employee. Otherwise, the payment made cannot be classed as “compensation or indemnity”. In other words, it is necessary for salary supplements to be altered or changed as a result of a unilateral decision by the company, “a step resulting in it later being required to make good, indemnify or compensate”.

Form 720

Late-filing penalties cannot be imposed for Form 720 if sufficient reasons are not provided for the existence of fault

Central Economic-Administrative Tribunal. Decisions of February 14 and January 16 2019

TEAC has rendered three decisions on various issues relating to Form 720, for reporting assets and rights abroad.

The tribunal has expressed agreement in these decisions with the option of allowing, in the event of the late filing of Form 720, an unjustified capital gain to be recognized for the taxpayer equal to the value of the reported assets (unless it is evidenced that they were acquired with reported income or in periods when the taxpayer was not resident in Spain). TEAC concluded that this regime is in line with EU law even though it gives rise to something resembling an obligation without a statute of limitations period which runs counter to the general principles of debts becoming statute-barred. TEAC explained that the CJEU has allowed similar statute of limitations periods in other cases and that it is reasonable for the statute of limitations to be calculated from when the authorities learn of the existence of the assets.

In relation to the penalty regime, however, it concluded that, regardless of the clarity of the legislation in relation to the late-filing penalties required for the return, those penalties cannot be imposed automatically, and it is necessary (as with every penalty procedure) to provide sufficient reasons for the existence of fault.

It must be remembered that on June 6, 2019, the Commission decided to refer Spain to the European Court of Justice “for imposing disproportionate sanctions for failure to report assets held abroad” (on form 720), as we discussed in our Tax Alert on the same date.

Management procedures

A new limited review procedure cannot be commenced if the first has not ended by reason of an express decision or a time bar

Central Economic-Administrative Tribunal. Decision of April 09, 2019

A taxpayer received a notice requesting certain documents related to corporate income tax for a given period. In that notice the taxpayer was advised of the commencement of a limited review procedure.

The taxpayer later received another notice advising of the commencement of a new limited review procedure. In this notice additional documents were requested relating to the same tax and period as for the previous limited review procedure which had not ended.

TEAC concluded that it may not be considered that a new limited review period commenced with the receipt of a new notice, insofar as a procedure had commenced earlier of the same type and with the same subject-matter which had not ended by reason of a time bar or an express decision. TEAC therefore took the view that all the tax authorities’ steps are part of a single limited review procedure commenced, for all purposes, on the date on which the first request for information was served.

In the specific case at issue, because more than six months had run between the date of the notice of the first request and the assessment made on the taxpayer, TEAC held that the time limit had expired for the procedure and the statute of limitations had run for the right to assess the tax on the basis that the (single) review procedure had not tolled the statute of limitations period.

Collection procedure

Enforced collection is not allowed for a penalty appealed outside the time limit

Central Economic-Administrative Tribunal. Decision of April 24, 2019

A taxpayer lodged an appeal against a decision to impose a penalty, which was not admitted because it fell outside the time limit. The taxpayer filed an economic-administrative claim against the failure to admit the appeal.

Before the appeal was lodged (which, as we have mentioned, was filed outside the time limit), the taxable person was notified of an interlocutory order initiating enforced collection proceedings as a result of nonpayment of the penalty.

TEAC rendered the order null and void because, in its opinion, the filing of a claim against the decision to impose a penalty, even if it takes place after notice of that order is served, automatically stays the duty to pay the penalty. TEAC added that the decision regarding the late filing of the appeal, moreover, lies with the economic- administrative tribunal that is hearing the claim against the penalty and not with the tax authorities themselves (which have the jurisdiction to decide on the appeal).

Penalty procedure

Any penalties imposed without having regard to proof requested by the taxpayer are null and void

Central Economic-Administrative Tribunal. Judgments of March 28 and February 21 2019

A penalty was imposed on a taxpayer for contraband. The taxpayer submitted pleadings against the proposed decision in which it requested proof to be taken to defend its interests. The penalty procedure was confirmed in a decision that failed to take that request into consideration.

In the decision on the later economic-administrative claim, TEAC concluded that the fact that the authorities failed to express a decision in relation to the proof proposed by the taxpayer is an omission of an essential step in the penalty procedure, which deprives the party with tax obligations of its right of defense (a right protected by the constitution). In view of this, TEAC held that the penalty imposed on the taxpayer was null and void as a matter of law.