Tax Newsletter - March 2019 | Rulings

Personal income tax

Amounts yet to be decided in arbitral award are reported when the award becomes final

Directorate General for Taxes. Ruling V0127-19 of January 18, 2019

The Personal Income Tax Law contains a special rule on when to recognize income not paid in full or in part because the right to receive it or its amount have yet to be determined in a court judgment. In these cases, the unpaid amounts are attributed to the tax period in which the judgment becomes final.

The DGT ruled that this special recognition rule applies equally where, instead of a court judgment, the right to receive a type of income or its amount depend on an arbitral award.

Personal income tax

The ratchet is considered newly generated where its determination depends on a board resolution

Directorate General for Taxes. Ruling V0106-19 of January 16, 2019

The shareholders at a company signed an agreement in 2012 in which they undertook to approve a ratchet system for certain executives. The specific intention was for the executives that remained at the company to have an incentive linked to the sale of shares in the company, and its amount would depend on the price obtained in the sale.

The incentives system was ultimately approved in March 2016 and it was left up to the board to decide, when the time came, on who the beneficiaries would be and the amount to be received by each one. In February 2017 a change of control of the company occurred and, after the relevant board resolution was adopted, the incentive was paid.

The DGT concluded that the incentive to be received as result of that change of control is classed as normal salary income, in other words, without entitlement to the 30% reduction, because it was not generated over a period longer than two years.

The reason for this is that the right to the incentive did not arise with the shareholders’ agreement in 2012 (because at that time only an undertaking to approve the incentives plan took place) but in 2016 and the period between this 2016 plan and the change of control was not longer than two years. Moreover, entitlement to the incentive was newly created with the board resolution (after the change of control occurred), and therefore there is no reason to consider that the incentive had a generation period longer than two years.

Personal income tax

Multiyear income obtained before 2015 affects the income obtained in later years

Directorate General for Taxes. Ruling V0108-19 of January 16, 2019

Since 2015, multi-year income has benefitted from special treatment (30% reduction) where it is generated over more than two years if, additionally, in the previous five tax periods no other salary income was received and given the same treatment (with certain particular provisions on income arising from termination of employment). Before 2015, the law did not lay down this second requirement but instead a more general condition that the income could not be periodical or recurring.

In this case, the DGT examined the case of a worker who (i) received in 2017 an amount of salary income with a generation period longer than two years, and (ii) had already received another amount in 2013 which received the special treatment for multi-year income.

According to the DGT, the new requirement linked to something that had happened in the previous five tax periods came into force on January 1, 2015, and no transitional regime had been provided in the law. For this reason, the income obtained in 2017 cannot benefit from the 30% reduction, because in 2013 (four years earlier) an amount of income was received that was treated as multiyear income.

Personal income tax

Income from work performed before moving to Spain is not treated as obtained there

Directorate General for Taxes. Ruling V0088-19 of January 15, 2019

The worker was beneficiary of a restricted stock units plan when she was resident in Ireland. In 2018 she moved to Spain and elected the special tax regime for inbound expatriates (which allows the worker to be taxed in Spain only on the income obtained there). In that same year, 2018, the restricted stock units were cashed out.

The DGT took the view that the salary income generated as a result of cashing out the restricted stock units cannot be treated as income obtained in Spain, because the restricted stock units were awarded as compensation for work performed in another country before the worker moved to Spain. As a result, it is not taxable in Spain or therefore subject to withholding  tax there.

VAT

VAT group treatment is not applicable to two Spanish subsidiaries of a non-established parent company

Directorate General for Taxes. Ruling V0039-19 of January 4, 2019

In line with the letter of the Spanish law, the DGT took the view that the ability to apply the VAT group treatment is confined to what are known as “vertical groups”, meaning groups in which there is a parent company that has firm financial, economic and organizational links with its subsidiaries.

This parent company must be established in Spain, since the article did not determine that two companies established in Spanish VAT territory wholly owned by a non-established company satisfy the requirements to be eligible for the special treatment (unlike what happens in the corporate income tax treatment for consolidated tax groups).