Tax Bulletin June 2013

R&D&I TAX CREDITS

Until recently it appeared to be accepted that R&D&I tax credits could be taken by the entities that physically carry out those activities, even if they are commissioned to do so by other parties, if they are not corporate income taxpayers. This has been common practice for pharmaceutical groups, in which the Spanish subsidiaries conduct clinical trials commissioned by nonresident entities in the context of international projects.

The Spanish tax inspectors seem to have changed their stance, however, in a large number of recent inspections. Although the inspectors have been acknowledging that the clinical trials are R&D and that the subsidiaries that physically conduct them can take the tax credit, they have been refusing to allow external expenses to be included in the amount on which the credit is computed, arguing that the credit has no other purpose than to reduce Spain’s technological dependence on other countries, and that in these cases the patents are not Spanish.

It just so happens that most of these external expenses are in many cases required by law, such as expenses relating to the doctors and researchers attached to the healthcare institutions where the clinical trials have to be conducted.

Moreover, the taxpayers often have reports from the Ministry of Science and Innovation (regulated in Royal Decree 1432/2003) on the fulfillment of the scientific and technological requirements for the purposes of applying and interpreting the tax credit for R&D&I activities, in which the internal and external expenses are certified as part of the base for the deduction.

The Directorate-General of Taxes has just taken care of this issue, however, in a recent ruling (V1892-13 of June 7, 2013, which we discuss in this Bulletin) in which in these cases it allows the credit to be taken and the internal and external expenses to be included in the amount on which it is computed, if they are linked to the R&D&I activities and itemized by project.

1. JUDGMENTS

• 1.1 Corporate income tax.- Cost assumed by subsidiary for stock options awarded to its employees by parent company are not deductible (Supreme Court. Judgment of May 6, 2013)
• 1.2 Corporate income tax.- Reinvestment tax credit not allowed for subscribing to shares in entity having no economic activity (National Appellate Court.
• 1.3 Principles of proportionality and non-confiscatory nature in personal taxes. (European Court of Human Rights. Judgment of May 14, 2013)
• 1.4 Value added tax.- VAT not deductible for recipients of services that have incomplete invoices subsequently completed with information aimed at proving the services (Court of Justice of the European Union. Judgment of May 8, 2013 in case C-271/12)
• 1.5 Value added tax.- The acquisition of properties used in a leasing business in a merger does not convert the absorbing entity into a taxable person for VAT purposes if it does not engage in leasing business activities after the merger (National Appellate Court. Judgment of February 27, 2013)
• 1.6 Inspection procedure.- Delay cannot be attributed to the taxpayer where delay in the delivery of documentation has not hindered inspection proceedings (National Appellate Court. Judgment of April 18, 2013)
• 1.7 Inspection procedure.- An assessment issued without considering the submissions made by the appellant, even if they have been filed by government mail, is voidable (National Appellate Court. Judgment of April 25, 2013)

2. DECISIONS AND RULINGS

• 2.1 Corporate income tax.- R&D tax credit for projects performed in Spain by Spanish subsidiary for foreign parent: inclusion of internal and external expenses (Directorate-General of Taxes. Ruling V1892-13 of June 7, 2013)
• 2.2 Corporate income tax. – Regularization of R&D&I tax credits when reasoned report reclassifies activities (Directorate-General of Taxes. Ruling V1437-13 of April 25, 2013)
• 2.3 Corporate income tax.– Nonrecourse factoring expenses not included in calculation of limit on deductible finance costs (Directorate-General of Taxes. Ruling V1314-13 of April 18, 2013)
• 2.4 Corporate income tax.– Rules to calculate deductible merger goodwill (Directorate-General of Taxes. Ruling V1032-13 of April 1, 2013)
• 2.5 Personal income tax.– Valuing compensation in kind deriving from use of dwelling in event of change of dwelling after October 4, 2012 (Directorate-General of Taxes. Rulings V1265-13, 1266-13 and 1268-13 of April 15, 2013)
• 2.6 Personal income tax.– Converting preferred shares into ordinary shares generates investment income (Directorate-General of Taxes. Ruling V1051-13 of April 2, 2013)
• 2.7 Tax collection procedure.- Construction progress certificates can be used to offset tax debts (Central Economic-Administrative Tribunal. Decision of April 2, 2013. RG 4031/2012)
• 2.8 Economic-administrative procedure.- Periods for filing of claims and appeals in cases of presumed rejection only start to run when there is notice of the relevant appeals (Central Economic-Administrative Tribunal. Decision of April 18, 2013. RG 3351/2010)

3. LEGISLATION

• 3.1 Protocol between Spain and Switzerland amending the tax treaty
• 3.2 Recognition and measurement standards and information to be included in the notes on intangible fixed assets
• 3.3 Spain-Kuwait tax treaty

4. OTHERS

• 4.1 Preliminary bill on support for entrepreneurs and their internationalization
• 4.2 Preliminary bill on private equity and other investment firms and their managers