Tax Newsletter - June 2023

The validity of residence certificates issued by other tax authorities for the purposes of a tax treaty cannot be questioned

The Supreme Court concludes that neither the tax authorities nor the domestic courts may question the validity of residence certificates issued by the authorities of signatories to a tax treaty with Spain, because they have to be presumed correct. Additionally, it recalls that the concept of “centre of vital interests” in tax treaties is broader than the concept of “center of economic interests” in the nonresident income tax law.

The burden of proof for abuse preventing the parent-subsidiary exemption from applying lies with the tax authorities

The Supreme Court examines the CJEU's case law and concludes that the anti-abuse provision preventing dividends paid by a parent to its subsidiary from being exempt may only be applied after an exhaustive analysis by the tax authorities (not by the taxpayer) of the objective and subjective circumstances of the case concerned.

Denying a nonresident’s right to apply the income/wealth limit breaches free movement of capital

The Wealth Tax Law allows residents to reduce their wealth tax liability by reference to the so-called income/wealth limit. The Balearic Islands High Court concludes that nonresidents cannot be denied the option of applying that limit, because acting otherwise would prevent free movement of capital.

Where an incorrect VAT charge is adjusted, it must be analyzed whether a right to a refund must be recognized for the person who paid the input VAT

According to the Supreme Court, where the tax authorities conclude that an amount of VAT was charged incorrectly, they have to recognize the person who paid the tax and their right to obtain the relevant refund. In other words, that person cannot be required to apply for that refund in a new procedure.

The base for the shareholder’s penalty must take into account the surplus amount paid over by the company, if the administrative adjustment is based on the existence of a sham transaction

The Supreme Court holds that, where it is considered that an individual has provided services through an interposed company (a sham transaction), the penalty for the deficiency in the shareholder’s personal income tax liability must be calculated by reference to the greater amount of tax paid over by the company. Otherwise, if the adjustment is based on the pricing of the shareholder/company transactions (transfer pricing), the shareholder’s penalty will be calculated without taking into account what the company has done.

The tax authorities cannot justify extension of liability for a company's debts to its director based only on their objective status as director

According to the Catalan High Court, to extend liability to a director for a company’s debts and penalties, proof needs to be provided of fault on the part of the director. The director’s role in the entity's actual management and direction must therefore be substantiated, together with the causal link between that direction and the commission of the infringements for which liability is extended.

Nonresidents are not taxable in Spain on the inheritance of shares in nonresident entities whose real estate assets in Spain represent less than 50% of the value of those companies

The DGT finds that, if a nonresident inherits from their father, also a nonresident, a number of shares in a nonresident company, that individual will not be subject to inheritance tax in Spain if the value of the company’s real estate asset (located in Spain) does not represent more than 50% of the entity's value.

For further details on this month’s judgments, decisions, resolutions and legislation, SEE THE WHOLE NEWSLETTER HERE.