Corporate income tax

Directors’ compensation should have been set out with certainty in the bylaws (at least under the legislation before the current Corporate Income Tax Law)

Central Economic-Administrative Tribunal. Decision of April 9, 2019

The auditors set aside a deduction for corporate income tax purposes for compensation paid to the company's directors, insofar as they considered that in the bylaws a compensation system had been determined from which the amount could not be known with certainty.

TEAC concluded that for directors’ compensation to be treated a deductible expense for corporate income tax purposes the bylaws must state that directors are compensated for their services and set out the amount with “certainty” (in other words, the specific compensation system must be determined in the bylaws).

If the chosen system is a share in the company's income (as occurred in the case at issue), TEAC held that the percentage of income to be paid needs to be determined completely in the bylaws, which means setting a maximum limit for that share is not enough.

By contrast, TEAC held that the expense must be allowed to be deducted if the bylaws stipulate a set amount to be updated each year by the shareholders’ meeting (provided they state the shareholders’ resolution approving that amount).

The decision, however, relates to periods before the entry into force of the current Corporate Income Tax Law 27/2014, of November 27, 2014, in which a reference to the deduction of the compensation under examination was expressly introduced.

VAT

Effective use or enjoyment of a service must be evidenced to determine whether it is subject to VAT

Central Economic-Administrative Tribunal. Decision of March 28, 2019

The VAT Law contains an effective use clause (cláusula de cierre) in the place of supply rules for services. According to this clause, certain services will be deemed supplied in Spanish VAT territory, where they are effectively used or enjoyed in Spanish VAT territory (even if, under those place of supply rules, they are not deemed supplied in the European Union).

TEAC has concluded in a recent decision that to apply that clause the customer for the services at issue over their place of supply is required to use them in transactions that must, in turn, be considered to take place in Spanish VAT territory.

In this respect, if the tax authorities fail to evidence that the supplied services were used in Spain in the terms mentioned, it must be concluded that they are not subject to VAT in Spanish VAT territory.

VAT/Transfer and stamp tax

The definitions of “independent business unit”, for VAT purposes and of “whole set of business assets, rights, and liabilities”, for transfer and stamp tax purposes, must receive the same treatment

Central Economic-Administrative Tribunal. Decision of March 28, 2019

A taxpayer transferred an industrial facility used for the sale of rice. This facility amounted to an “independent business unit” but was not the whole set of that person’s business assets, rights, and liabilities. The taxable person therefore considered that the transfer was not subject to VAT (because it involved the transfer of an “independent business unit”) though it was subject to stamp tax, because the transfer had been documented in a public deed and the act had to be registered.

The tax authorities adjusted the taxpayer’s tax liability because they considered that the transfer was subject to transfer tax as a transfer for consideration, on the basis of article 7.5 of the revised Transfer and Stamp Tax Law, which provides that supplies of properties that are part of the transfer of “a whole set of business assets, rights, and liabilities” are subject to transfer tax as a transfer for consideration if they are not subject to VAT.

In other words, the tax authorities gave the same treatment to the definitions of “independent business unit” and “a whole set of business assets, rights, and liabilities” as used in the VAT and transfer and stamp tax laws, respectively.

TEAC confirmed this questionable administrative interpretation because, in its opinion, the legislation does not have to be interpreted to the letter, instead according to what (in the tribunal's view) may be seen as its spirit: the necessary coordination between VAT and transfer tax on a transfer for consideration to ensure that every transfer of property is always subject to one tax or the other.

Administrative procedure

It is correct to notify the taxpayer even if the taxpayer has appointed a representative to receive notifications

Central Economic-Administrative Tribunal. Decision of April 9, 2019

A taxpayer had authorized a company to act as its representative for receiving electronic notifications. The power of attorney was registered on AEAT’s register of authorized representatives.

Later, a penalty notification was sent to the taxpayer’s electronic address (but not to the representative’s). After there had been no access to its contents within ten days, the decision was deemed notified. The later economic-administrative claim to Madrid TEAR was not admitted due to late filing.

In the subsequent appeal, TEAC concluded that the notification made to the electronic inbox associated with the enabled electronic address of the person with tax obligations was correct, because the tax authorities are not required to make notifications to the representative when they are made in procedures initiated on the authorities’ initiative. In these procedures, according to TEAC, the General Taxation Law authorizes the tax authorities to use (in no specific order) any of the places listed in article 110.2 of the General Taxation Law.

Audit procedure

The time period for rendering a second assessment decision runs from when the auditors receive the decision on reversion of the procedure

Central Economic-Administrative Tribunal. Decision of April 23, 2019

At issue in this decision was determining when the time period for inspection work starts and ends for audit work to stop in cases where the procedure is ordered to be reverted by the tax or judicial authorities due to procedural defects.

TEAC concluded that the time period determined in article 150.7 of the General Taxation Law (formerly article 150.5) for the reversion of audit work in cases of procedural defects must run from when the decision ordering the reversion is received by the Audit Office responsible for continuing the procedure, not from when it is received by the Office for Relations with the Tribunals at AEAT.

Audit procedure

A field auditor who had been an expert in the earlier criminal proceeding does not have to be removed

Central Economic-Administrative Tribunal. Decision of April 9, 2019

In a criminal proceeding a taxpayer was acquitted in relation to a tax offense. As a result of this decision, the case record was returned to AEAT for it to continue with the audit that had been started. The field auditor in this audit was the same auditor that testified as an expert in the criminal proceeding. That audit ended with an assessment decision which was appealed to TEAC by the person with tax obligations.

TEAC dismissed the claim and, among other conclusions, determined that the field auditor did not have to be removed because he had acted as an expert in the criminal proceeding. TEAC affirmed that the grounds for removal of experts set out in the then in force Law 30/1992 (such as “clear enmity”) cannot be extended to field auditors.

TEAC held, moreover, that the failure to include the criminal proceedings in the administrative case file does not deprive the taxpayer of their right to defense, insofar as the person with tax obligations has access to those proceedings at all times.

Collection procedure

The time period for rendering a new decision shifting liability after a previous decision has been set aside is six months

Central Economic-Administrative Tribunal. Decision of March 20, 2019

TEAC was asked how long the tax authorities have to render a new decision shifting liability, after a TEAR regional tribunal has decided to revert the procedure and the first decision has been set aside.

TEAC concluded that the six-month period set out in article 104 of the General Taxation Law is applicable, not the period set out in article 150.5 -now article 150.7-, which is only applicable to audit procedures, not to collection procedures. This time period must run from when the TEAR's decision has been entered on the register of the authority responsible for enforcement.

A breach of that time period, according to TEAC, gives rise to expiry of the collection procedure, with the related consequences.

Collection procedure

Applications for deferred/split payment made by dissolved companies in liquidation may be dismissed outright

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

A company in the process of liquidation and dissolution applied for deferred payment of a tax debt by claiming it had temporary cash flow problems. That application was rejected by the tax authorities because (i) the fact of the company being in the process of liquidation and dissolution means that its cash-flow problems are permanent (not temporary); and besides, (ii) the company had other debts that were being enforced.

Andalucía TEAR upheld the taxpayer’s claim. This tribunal affirmed that the application for deferred payment should not have been rejected without first examining the documents produced by the taxpayer (insofar as the existence of assets that could secure collection action by the authorities could be inferred from them).

In the subsequent special administrative appeal for a ruling on a point of law, TEAC confirmed what AEAT had said and set an official interpretation that applications for deferred/split payment filed by dissolved companies in liquidation may be denied without having to carry out any specific analyses or studies of the alleged economic difficulties, because they are permanent difficulties.

Penalty procedure

Not reporting income not mentioned in the information provided by the tax authorities is allowed to be subject to a penalty

Central Economic-Administrative Tribunal. Decision of April 3, 2019

Every year personal income taxpayers have access to the information the tax agency has on the types of income obtained. That information may be incomplete, however, and sometimes, incorrect.

In this decision, TEAC set an official interpretation that, in cases where a personal income tax return is filed according to incorrect or incomplete data supplied by AEAT in its tax information, a tax infringement may arise if there is fault on the taxpayer’s part.

It must be recalled that penalties cannot be imposed automatically. It is not enough simply to identify that (by objective standards) the taxable person has committed an infringement, instead it must be confirmed that the taxable person was at fault and there must be special reasoning proving that fault.