Tax Newsletter - June 2019 | Judgments

Corporate Income Tax

Entities not carrying on an economic activity could not claim the regime for entities of a reduced size either before the current Corporate Income Tax Law

National Appellate Court. Judgment of May 3, 2019

The Corporate Income Tax Law provides a special regime for entities of a reduced size. Among other requirements for claiming the regime, the entity must not be a holding company within the meaning of article 5.2 of the law, which, generally, means the entity must carry on an economic activity.

However, the Revised Corporate Income Tax Law in force for fiscal years that began before or in 2014 did not lay down this requirement. Despite this, in the National Appellate Court’s opinion, that requirement has always been necessary to be able to claim this special regime. In other words, it is necessary for there to be an economic activity and assets used in that activity.

It must not be forgotten, nevertheless, that this matter has been submitted to the Supreme Court (Admission decision of April 9, 2018, appeal 468/2018).

 

VAT

Centralized management of fuel cards used by the entities in a group does not involve the acquisition and resale of fuel by the company managing them

Court of Justice of the European Union. Judgment of May 15, 2019

The Court of Justice of the European Union (CJEU) examined the case of a group engaged in transport operations, in which, for organizational and economic reasons, all transactions carried out with fuel cards are centralized by the parent company in Austria.

Every month, the parent company receives from the fuel suppliers invoices for the purchase of fuel with VAT, and recharges the cost to its subsidiaries (so that they supply the vehicle transportation service) with a 2%. surcharge.

According to the CJEU, these transactions do not involve a purchase and resale of the fuel, instead the granting of credit exempt from the tax.

 

VAT

A change to the taxable amount cannot be barred because the debtor that has not paid the debt is no longer a taxable person

Court of Justice of the European Union. Judgment of May 8, 2019

The CJEU considered whether it is in line with the VAT Directive for a national law to bar a change to the taxable amount when all or part of a debt has not been paid, simply because the debtor is no longer a VAT taxable person.

The CJEU concluded that it is not, so a bar of this type is not in line with the VAT Directive.

 

VAT

The values of transactions with prices paid in kind must be determined according the terms agreed by the parties

Supreme Court.  Judgment of April 23, 2019

The Supreme Court examined in this judgment how transactions must be treated for VAT purposes when their prices are paid in money.

Basing its judgment on EU case law, the court concluded that:

1. As a general rule, if the transactions: have prices not paid in money, are not made between related parties, and the value of the price in kind is expressed in money, then the tax authorities must take the value or amount agreed between the parties as the price.
2. Therefore, in these cases, it is not correct, when determining the taxable amount, to take as reference the market value obtained from a transaction that took place after the one being examined.

Note that the judgment was rendered in relation to transactions performed before the amendment to the legislation which expressly sets out that in these cases the taxable amount is the value agreed between the parties, a rule that was introduced precisely to bring Spanish legislation into line with EU law.

 

VAT

The activity of renting a space for the operation of type B slot machines is not exempt from VAT 

Supreme Court. Several judgments in March 2019

The Supreme Court examined activities related to slot machines.

It concluded, in this particular case, that regardless of the characterization of the agreement signed between one trader (owner of a hotel establishment), and another (owner of type B slot machines), it is to be considered that:

• The owner of the type B slot machines carries on a gaming economic activity, subject to VAT but exempt under article 20.1.19 of the VAT Law.
• The owner of the hotel establishment makes a supply of services subject to VAT which, together with other related obligations, consists principally of the delivery of a space for the installation of machines in exchange for a price, regardless of whether the compensation it receives may vary according to the revenues it obtains from the machine (a supply that cannot be treated as exempt from VAT).

 

Transfer and Stamp Tax

A deed that cannot be registered because it has defects is not subject to Stamp Tax

Madrid High Court Judgment of April 04, 2019

Notarial deeds, records and certificates are the taxable event for stamp tax, as notarial documents, for transfer and stamp tax purposes, within the meaning of article 31 of the revised Transfer and Stamp Tax Law. Specifically, the variable stamp tax charge applies for first copies of notarial deeds and records relating to a sum or valuable item where they contain acts that are able to be registered at given registries and are not subject to inheritance and gift tax or other transfer and stamp tax headings.

The Supreme Court was asked to determine whether stamp tax is payable on a deed that cannot be registered as a result of defects assessed by the registrar. According to Madrid High Court, in this case the taxable event does not take place because the requirement in relation to the act being able to be registered is not satisfied.

 

Collection procedure

Late filing surcharges for tax returns cannot be imposed automatically

National Appellate Court. Judgment of April 11, 2019

The General Taxation Law sets out a late-filing surcharge system with varying amounts according to the length of time that ran between the end of the voluntary filing period and when they were filed. So, the charges may be 5%, 10% or 15% where the returns are filed within three, six or twelve months after the end of the voluntary filing period; and 20% when they are filed after the end of twelve months. In this last case, late-payment interest also falls due after twelve months have run from the end of the voluntary filing period.

In practice, these surcharges are imposed by the tax authorities automatically simply as a result of the late filing of a return (either the return that should have been filed originally or a supplementary return to the one that was filed) and the return gives rise to an amount of tax payable.

The National Appellate Court, however, set aside this automatic mechanism in a recent judgment. In its view, the principles of good faith, legitimate expectations and prohibiting arbitrary decisions by public powers require attention to be paid in each case to the specific circumstances of the case and to the reasons why the taxpayer acted in a given way.

In this specific judgment the court examined the case of a taxpayer who had filed an inheritance tax return within the time limit but later filed a supplementary return to include assets that were part of the inheritance and located abroad, which the heir did not know existed until after the original return had been filed (this is a very common occurrence in inheritances, because the heirs or devisees cannot be expected to know about all the deceased’s assets, rights and debts).

The National Appellate Court held that, for this reason, and to protect the principles mentioned above, in this case it was not reasonable to impose a surcharge.

This is not the first time the courts have set aside surcharges in certain cases relating to supplementary returns. In fact a number of judgments have denied that these surcharges are reasonable. For example, where the supplementary returns are filed to apply the interpretation adopted in an audit to later years falling outside the audit, as we discussed in our March 2019 Newsletter (AVAILABLE HERE).

 

Review procedure

Costs cannot be ordered to be paid in an economic-administrative proceeding

Supreme Court. Judgment of June 3, 2019

Article 51.2 of the regulations on review in the administrative procedure provide that, where one of the parties is ordered to pay costs in an economic-administrative proceeding, “they must be calculated at 2% of the amount of the claim” and range between €150 and €500 according to whether the authority responsible for deciding the claim is a single person or a collective body, respectively.

The Supreme Court has held that this article is null and void because it found that procedural costs lose their true nature if they are calculated generally and abstractly without regard to the specific proceeding in which the costs to be covered arise.

 

Mutual agreement procedures

The tax authorities may deny the commencement of a mutual agreement procedure if there has been tax fraud

National Appellate Court. Judgment of April 22, 2019

A national appellate court judgment dealt with a case in which the auditors held that there had been tax fraud and, as a result, proposed an adjustment which, in practice, involved taxing revenues that had been taxed in another country. For this reason, the taxable person applied for the commencement of a mutual agreement procedure, which was rejected by the tax authorities on the basis of a decision declaring the existence of tax fraud.

The National Appellate Court confirmed that, in cases of the type being examined, the Spanish tax authorities are allowed to reject the application to commence a mutual agreement procedure. The court affirmed that, although there is a risk of double taxation, it is reasonable to disallow tax treaty benefits where there has been fraudulent conduct.