Corporate income tax

Accelerated depreciation may only be elected in the statutory filing period for the return

Central Economic-Administrative Tribunal. Decision of February 14, 2019

As part of a limited review procedure, a taxpayer requested recognition of a downward adjustment to the corporate income tax base, by claiming the benefit related to accelerated depreciation (which had not been included on the return filed in the voluntary period). The tax authorities rejected that request.

The Cantabrian TEAR (Regional Economic-Administrative Tribunal) upheld the taxpayer’s arguments and concluded that accelerated depreciation includes exercising a right that the taxable person is allowed to exercise within the statute of limitations or nontollable time period, not an election governed by article 119.3 of the General Taxation Law.

In a special administrative appeal for a ruling on a point of law lodged by AEAT, TEAC ruled against the interpretation expressed by the Cantabrian TEAR and confirmed the tax authorities’ view, by holding that accelerated depreciation is an election that may only be exercised within the statutory period for filing the tax return.

TEAC argued that if a taxable person decides not to claim the accelerated depreciation benefit for certain assets and/or rights on the return for a fiscal year, that election cannot later be changed with respect to that year. It clarified however that this argument does not mean the taxpayer cannot enjoy that tax benefit in later years, even if the accelerated depreciation in those other years relates to the same assets and/or rights.

Transfer tax

Charging transfer tax on capital increases is precluded by EU law

Central Economic-Administrative Tribunal. Decision of January 21, 2019

TEAC examined the case of a taxable person acquiring control of a company by subscribing to a capital increase made by the company in 2010.

The tax authorities assessed transfer tax under the provisions then set out in article 108 of the Securities Market Law, because more than 50% of the entity's assets consisted of properties located in Spain and subscription to the capital increase had enabled the taxable person to take control of the entity.

The taxable person pleaded against this that Directive 2008/7/CE concerning indirect taxes on the raising of capital restricts the ability of member states to levy indirect taxes on certain transactions which raise capital, including issuing and subscribing to shares in limited liability companies, and expressly determines that the tax on those transactions cannot under any circumstances go above 1% of the value of the issued capital.

Recognizing the direct enforceability and prevalence of EU law, TEAC set aside the tax authorities’ assessment by arguing that article 108 of the Securities Market Law (in the wording applicable when the taxable event took place) was precluded by the provisions in the Directive relating to the tax on transactions on the primary market (meaning legal transactions that do not strictly transfer, but relate to capital and enable new individuals or entities to take control).

Transfer and stamp tax

The tax base for early exercise of a call option under a finance lease is the exercise price

Central Economic-Administrative Tribunal. Decision of January 21, 2019

According to TEAC, in the event of early exercise of the call option under a finance lease agreement, the tax base is not the residual value or market value of the asset under the finance lease, but the value of the legal transaction documented in the deed, in other words, the price set between the parties to acquire ownership of the asset thereby ending the financing covenanted earlier.

In short, the tax base is the price covenanted for exercising the option.

Inheritance and gift tax

If an heir dies without accepting an inheritance only one taxable event occurs

Central Economic-Administrative Tribunal. Decision of December 10, 2018

In line with the interpretation set by the Supreme Court in its judgment of June 5, 2018 (Tax Newsletter - June 2018), TEAC has changed its earlier view and held that in cases where an heir dies before accepting an inheritance, a single inheritance takes place between the first deceased and the successor to the deceased heir.

Accordingly, inheritance tax will only fall due once.

Management procedure

Misuse of a limited audit procedure does not render the audit null and void as a matter of law

Central Economic-Administrative Tribunal. Decision of January 16, 2019

TEAC examined the consequences of misuse of a limited audit procedure.

The tribunal concluded first that misuse of this procedure does not render the administrative acts arising from it null and void, unless it is determined from the start of the procedure that there is an outright, obvious, clear and ostensible breach of the rules of law governing it

Therefore, generally speaking, where an assessment is set aside on the ground of misuse of a limited audit procedure, the authorities may start a new review procedure and make a new assessment under the right procedure, within the statute of limitations period.

However, in any new assessment issued after the start of a second procedure, late-payment interest may only be assessed until the date on which the first assessment was set aside.

Administrative procedure

Two contradictory attempts at notification are not valid

Central Economic-Administrative Tribunal. Decision of January 16, 2019

The tax authorities made two attempts at notifying a decision on mandatory inclusion of a taxpayer on the enabled electronic address system. In the first attempt, the postal service reported that the person with tax obligations was absent; in the second, that the taxpayer was unknown. After a third attempt, the decision was received by a person who failed to provide correct identification, and the signature and taxpayer identification number given were illegible.

A few months later, the tax authorities requested through their website a certain item of information relating to corporate income tax. Because the information was not delivered, proposed assessments and penalties were issued which were later confirmed. Later on, because the debts were not paid, enforced collection decisions were issued. Lastly, because no attention was paid to those decisions, the authorities ordered the offset of the enforced debts against a number of sums payable to the taxpayer by the tax authorities.

Only after all these steps did the taxable person enter the website and accept notification of all the decisions mentioned (assessment, penalty, enforced collection, offset). The Catalan TEAR disallowed the subsequent claim due to falling outside the time limit.

TEAC, however, concluded that the original notification attempts for the decision on inclusion on the enabled electronic address system were not valid:

  1. The first two notification attempts were contradictory, because if the taxable person was absent at the first notification attempt, they could not be unknown at the second. Besides, because no notice of those attempts was left in the mailbox, they cannot be regarded valid.
  2. The third attempt was not valid either because of the described circumstances regarding the person that received them (illegible taxpayer identification number and signature).

As a result, notification of the decision did not take place until the person with tax obligations entered the website for the first time. And for this reason, moreover, any steps by the authorities made available to the person with tax obligations on the website before the date when the taxpayer entered it for the first time, had to be disregarded.

Collection procedure

Individual enforcement action may be commenced after the insolvency proceeding has ended if new assets or rights belonging to the debtor appear

Central Economic-Administrative Tribunal. Decision of January 30, 2019

A commercial court rendered a decision holding that an insolvency proceeding had ended due to the inexistence of assets or rights belonging to the debtor. Later, AEAT ordered attachment of the taxpayer’s bank accounts for an amount equal to the principal of an outstanding tax debt, plus the relevant enforced collection surcharge and late-payment interest.

The insolvency practitioners objected to that attachment, and the Catalonia TEAR rendered a decision upholding the filed economic-administrative claim by arguing that after an insolvency proceeding has been held to have ended due to the existence of assets and rights owned by the insolvent debtor, the creditors may take individual steps against the debtor company.

Due to disagreeing with that decision, AEAT lodged a special appeal for a ruling on a point of law, which was upheld by TEAC in a decision setting the following interpretation: after the court decision ending the insolvency proceeding has been rendered due to liquidation or insufficient assets of the insolvent debtor company, if new rights or assets owned by the debtor have appeared, creditors with claims that had been recognized but not been paid in full may bring individual enforcement actions against those new assets until a decision reopening the insolvency proceeding is rendered.