Partially exempt entities may use the capitalization reserve

Directorate General for Taxes. Ruling V0428-19, of February 26, 2018

The capital reserve corporate income tax benefit consists of a reduction to the tax base equal to 10% of the increase in equity if certain requirements are met, basically linked to not distributing dividends, in other words, to that increase in equity staying in place for a period of time (five years).

It was asked whether a consortium recognized as an association with public benefit status in 1943 which is taxed under the tax regime for partially exempt entities (set out in articles 109 through 111 of the Corporate Income Tax Law) may use the capitalization reserve, from the standpoint that in this regime a portion of their income is tax exempt.

According to the DGT, entities of this type are indeed allowed to use the capitalization reserve, but only a portion relative to the increase in their equity that comes from non-exempt income.

Corporate income tax

Indemnification payments from insurers to cover penalties are taxable

Directorate General for Taxes. Ruling V0424-19 of February 27, 2019

The Spanish Data Protection Agency imposed a penalty on the entity, which was recorded as an expense for accounting purposes. The entity had signed an insurance contract, providing cover for public authority penalties, so the insurer paid out indemnification equal to the amount of the penalty.

According to the DGT, this indemnification is a computable revenue even if the penalty is not deductible, because although the law says that penalties are not deductible, it contains no particular provisions in relation to amounts paid out by insurance companies.

Personal income tax

Where the same discounts are offered to own employees and employees of other companies, there is no income in kind

Directorate General for Taxes. Ruling V0341-19 of February 15, 2019

The employees of a company and of its subsidiaries were allowed to buy at discounted prices the brand name products they sold. It so happened that every employee of all the large companies with offices near that company’s head offices could also buy the same products at the same prices and subject to the same terms and conditions and discounts as its employees. In practice, the number of employees of nearby companies benefitting from these conditions was similar or higher even than the number of employees of the company and its subsidiaries, and therefore the level of sales made to those employees of nearby companies was also similar to or greater than the level of sales made to its own employees.

On the basis of these figures, the DGT concluded that they may be classed as ordinary or normal discounts, which means that there is no income in kind for the employees of the requesting entity and its subsidiaries.

Inheritance and gift tax

An inbound expatriate receiving a gift may apply the legislation of the autonomous community where they reside

Directorate General for Taxes. Ruling V0293-19 of February 13, 2019

In the examined case a taxable person who had been claiming the special tax regime for inbound expatriates under the personal income tax legislation, received a gift of 50% of a property in Madrid. The giver was their spouse, also an inbound expatriate.

According to the DGT, inbound expatriates have tax resident status in Spain, even if they have chosen to be taxed as nonresidents for personal income tax purposes under the special tax regime for inbound expatriates. In other words, for the purposes of other taxes they are treated as residents. For inheritance and gift tax, therefore, they are taxed on all the property they receive, wherever located.

Therefore, they are also treated as residents when determining the autonomous community legislation applicable to them. In this particular case, due to involving the gift of a property in the Madrid autonomous community, this autonomous community government is responsible for charging the tax.

Inheritance and gift tax

Disclaiming an inheritance after the tax has become statute-barred implies there is a gift

Directorate General for Taxes. Ruling V0229-19 of February 4, 2019

This ruling examines the tax effects of disclaiming an inheritance. The DGT recalled, first, that a disclaimer is a voluntary and freely-decided action in which the person called on to inherit declines their right to receive the whole of their inheritance (never part) irrevocably and unconditionally, in a public instrument executed in the presence of a notary. Its effects are valid retrospectively to the time of the decedent’s death. In these cases, the beneficiary of the disclaimer is the person who is taxed for inheritance and gift purposes.

It was asked, however, what effects would arise on the tax if the disclaimer by an heir and the acceptance of their parts of the inheritance by the other heirs occurs after the tax has become statute-barred. According to the DGT, in these cases it is considered:

  1. That both the disclaimer and the acceptance of the inheritance by the persons benefitting from the disclaimer have ex tunc effects. This means that the person disclaiming the inheritance never received it and therefore is not liable for inheritance tax or wealth tax.
  2. In these cases involving a statute bar, however, the person who received the inheritance by reason of the disclaimer will be deemed to be actually the beneficiary of a gift, for which reason they must be liable for gift tax at the time of the disclaimer, as provided in the legislation on the tax.This gift, however, only has effects for the recipient. It does not mean that the declining party must be liable for personal income tax or wealth tax because, as mentioned, it is considered that they never acquired the disclaimed property.

VAT

The DGT examines the VAT implications of flexible compensation plans

Directorate General for Taxes. Ruling V0366-19 of February 20, 2019

This ruling examined the case of a company that granted to its workers, under a flexible compensation plan, meal vouchers amounting to a “multi-purpose voucher” (exchangeable for hospitality services only in Spanish VAT territory).

According to the DGT, in the context of a flexible compensation plan, a worker declining part of their monetary compensation in exchange for income in kind determines the existence of a transaction for consideration that the employer makes to benefit the worker and is subject to VAT:

  1. If the supply of the products is subject to and not exempt from VAT (as is the case with the meal vouchers mentioned), the employer must pay over the chargeable tax.
  2. If, however, the supplies of goods or services are exempt (which would occur with insurance transactions, for example) no VAT would have to be paid over but the employer’s right to deduct VAT might be affected, if it alters the employer's deductible proportion.