In April 2021 the Constitutional Court admitted an appeal that questioned the constitutionality of the Wealth Tax following the reforms introduced by the General State Budget Law of that year.
The Wealth Tax was technically abolished in 2008 through the creation of a 100% rebate on its tax quota, but the economic crisis meant that its disappearance was short-lived and in 2011 and 2012 it was recovered through a measure that it had to be temporary. However, that temporary decision was extended year by year and since then the tax has been required until 2021, when the provision that determined its disappearance was definitively repealed by the General State Budget Law of that year, so that this year the tax has become indefinite and its disappearance is no longer envisaged.
In these circumstances, what is at issue in the appeal is the constitutionality of the following changes:
- The increase in the maximum marginal rate from 2.5% to 3.5%, which could breach the principle of non-confiscation established in Article 31 of the Constitution.
- The repeal of the temporary nature of the tax, making it payable indefinitely, which would mean to the creation of a new tax in breach of the provision of Article 134 (7) of the Constitution, which prohibits the establishment of taxes by means of a General State Budget Law.
If the reforms are finally declared unconstitutional, the Wealth Tax returns of the fiscal years 2021 and 2022 should be rendered ineffective, and the tax payments paid would be refunded together with the corresponding interest for late payment, although at this point the doubt arises as to whether the Constitutional Court could establish limits to the scope of its ruling, as it did when it declared the unconstitutionality of the so-called municipal capital gains tax (“plusvalia municipal”), when it prevented those tax returns that had not been challenged until then from benefiting from its effects.
In view of the uncertainty surrounding this issue and in order to try to ensure the recovery of the tax if the appeal is finally upheld, it seems advisable to request the rectification of the Wealth Tax returns corresponding to fiscal years 2021 and 2022 before the ruling of the Constitutional Court, although it should not be forgotten that requesting the rectifications means interrupting the statue of limitation period for the tax, which will give the Tax Administration more time to check those two years, so in each case it will be necessary to assess whether the benefit of a possible declaration of unconstitutionality outweighs the consequences that the interruption of the statute of limitations may have.
As for the time at which the challenges should be made, after two years from their admission for processing, it seems that the resolution of the appeal should not take too long, although this is an uncertain question considering that in this case the Constitutional Court is not subject to compliance with any deadline.
Regarding the grounds of the challenge, the unconstitutionality of the rule that made it necessary to file it should be defended, an issue on which the Administration cannot pronounce itself as it is reserved to the Constitutional Court, and therefore, until the latter resolves the issue, successive challenges before different instances will be rejected.
In this sense, it would be advisable to prolong the duration of the administrative procedure as far as possible while waiting for the Constitutional Court’s ruling, trying to avoid the contentious-administrative procedure, which entails additional costs, as it requires the intervention of solicitors.
It should be borne in mind that the different instances that would have to be exhausted before reaching the contentious-administrative route would be the following:
1) Request the rectification of the tax returns before the competent Tax Management Office.
2) Appeal for reconsideration
3) Economic-administrative claim before the competent Regional Economic-Administrative Court.
4) Appeal to the Central Economic-Administrative Court (only for tax quotas over €150,000).
The purpose of this Tax Flash is to inform you that our law firm has already started to challenge these submitted Wealth Tax returns by individuals non tax residents in Spain in order to obtain the refund of the paid amounts (plus delay interests) we are at your disposal to discuss the issue in more detail.
The Spanish National Audience, a Spanish high Court, has recently raised an exception of unconstitutionality before the Constitutional Court (CC), relating to Royal Decree-Law 3/2016, dated 2 December 2016.
This legislation introduced some relevant restrictions to the deduction of expenses and to certain tax credits in Corporate Income Tax (CIT) that resulted in an increase in the taxation in CIT since year 2016.
The main limitations were the following:
– Limitation in offsetting tax losses from previous years which applies to companies and to tax consolidation groups with a turnover over 20 million euros (limitation to 50% on the taxable income if the turnover is over 20 million euros, and to 25% for CIT taxpayers with a turnover exceeding 60 million euros),
– Automatic reversal for CIT purposes, within a 5-year period, of the impairment on investments, irrespectively of the actual equity situation of the interest impaired.
- Limitation of the double taxation tax credit to 50% of the CIT gross tax payable.
In this case, as it already was the case for Royal Decree-Law 2/2016, which increased the CIT prepayments, that were declared unconstitutional by the CC, the National Audience challenges the use of a Royal Decree-Law for those limitations, which in accordance with the Spanish Constitution shall only be used in the case of extraordinary and urgent need, to regulate essential elements of this tax, while this regulation must be introduced by a proper Law.
If the Constitutional Court also declared Royal Decree-Law 3/2016 as unconstitutional, the large CIT taxpayers would qualify to offset tax losses from previous years with the general 70% limit on the taxable income, instead of the reduced 50% and 25% limits. Therefore, the CIT taxpayers that were affected by this limitation would be entitled to claim the refund of the CIT liabilities paid in excess and, if applicable, the late payment of interest, deriving from this legislation for the years still open to a tax audit (in principle, 2018 to 2021).
Nevertheless, it should be noted that the recent sentences from the Constitutional Court on tax issues have limited their effects to those cases where the tax returns affected by the legislation declared unconstitutional have been previously appealed and no final judgement has been issued yet on this proceeding at the date of effects of the Sentence from the CC.
With this background, we recommend to perform a previous analysis of the additional taxation actually borne derived from this legislation, in order to conclude on whether an appeal of the CIT return filed that could be affected by a favourable sentence from the CC, in order to obtain the refund of the CIT liabilities paid in excess and or, if applicable, the late payment of interest, as it happened for Royal Decree-Law 2/2016.
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The General Directorate of Taxes, in its binding consultation V2612-22, of 12/23/2022, has applied the doctrine of “complex operational settlement“, which began from several binding consultations in 2008, in the interpretation of the concept of Permanent Establishment (PE) of the Agreement to avoid Double Taxation (CDI) signed in 1994 between Spain and Ireland.
This doctrine basically consists of considering, in line with the provisions of paragraph 27.1 of the Comments to Article 5 of the 2017 OECD Model Convention, that “an enterprise cannot fragment a cohesive operating business into several small operations in order to argue that each is merely engaged in a preparatory or auxiliary activity”. In this way, in the case analyzed in the consultation, the DGT understands that the Irish parent company has a PE, as it carries out a significant part of all its activity in Spain, and because it is not limited to simple storage, but rather covers all logistics operations of the merchandise supply chain.
What is relevant to this consultation is that the DGT is applying the criterion of the OECD 2017 Model on PEs to the CDI with Ireland, which is prior to 2017, when this interpretation can only have prospective effects (that is, on the CDIs after the OECD 2017 Model). In this way, the DGT seems to consider that the doctrine of the “complex operational settlement” is applicable in any case, regardless of the date of the CDI applicable between Spain and the State of residence of the non-resident entity that carries out an activity in our country.
Access the full binding consultation HERE
The General Directorate of Taxes (DGT) has issued on February 1, 2023 the binding consultation V0107-23 on the taxation in the Wealth Tax (WT) of a German tax resident who owns 25% of a German limited partnership ( KGaA) whose only asset is a property in Ibiza.
The DGT considers that, in accordance with art. 21.1 of the Double Tax Treat subscribed with Germany and with the new wording of art. 5 of the WT Law, the German tax resident must pay taxes on said WT by real obligation. However, this will not happen if the German company has other investments in other States that represent more than 50% of its assets.
Access the complete binding consultation HERE
Foreign companies not established in Spain or in another EU Member State that have been charged VAT in Spain in 2022, can apply for a VAT refund by the peremptory deadline of 30 September 2023.
Read on if you want to know more about the procedure, and the timing!
First of all, it should be noted that the preparatory phase for applying for such a refund may take a long time depending on the State of residence of the non-established company, therefore it is recommended to start the procedure as soon as possible.
Secondly, it is important to remember the relevant steps to be followed:
- Appoint a representative in Spain to claim the VAT refund on behalf of the non-established company.
- Prepare the necessary powers of attorney and the required documentation, legalized.
- Apply for the refund at the Spanish Tax Authorities (AEAT).
At this point, it is important to mention that the representative will be responsible for submitting the documentation to the Spanish Tax Authorities and only after its acceptance (which can take up to a month) the representative will be able to apply for the VAT refund.
Here, at Audiconsultores ETL GLOBAL we can assist these companies applying for the VAT refund.
Contact us for more information HERE
The Spanish Tax Administration has published prior public consultation on the transposition into Spanish law of Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (Pilar 2).
Directive (EU) 2022/2523 establishes a top-up tax for multinational groups with consolidated income of more than 750 million euros through two interlocked rules, (i) the Income Inclusion Rule (IIR) and ( ii) Undertaxed Profit Rule (UTPR), in support of the former, which guarantee that the income obtained by said multinational groups located in Member States of the European Union or by multinational groups whose parent company is located in a Member State of the European Union (in the latter case, whether the group companies are located in the European Union or outside it) effectively pay a global minimum rate of 15%.
Regarding subsidiaries in Spain of this type of groups, it must be noted that if the UTPR rule applies to its group because it is located in a non-EU country that does not apply an admissible IIR, or in a country with low taxation, they will be taxed by said top-up tax.
In principle, it is proposed that the transposition of Directive (EU) 2022/2523 be carried out through its own standard of legal rank, and it must be in force on December 31, 2023 for it to be applied to the tax periods that begin on or after that date, in practice in 2024, although the UTPR rule will apply for tax periods that begin on or after December 31, 2024, in practice on January 1, 2025 .
Access the full consultation HERE