The Chamber clarifies how to interpret the expression “main core or the basis of their activities or economic interests” used in Article 9.1.b) of the LIRPF as a criterion to determine tax residence in Spain.
The Supreme Court has issued two rulings in two appeals on the interpretation of the expression “main core” or “base of their activities or economic interests” that the Personal Income Tax Law establishes as a criterion for determining tax residence in Spain. Specifically, it has done so through its rulings no. 1214/2024, of July 8, ECLI:ES:TS:2024:3882, and no. 1393/2024, of July 22, ECLI:ES:TS:2024:4220.
In both cases, the Chamber reiterates the jurisprudential doctrine already established in the previous STS No. 778/2023, of 12 June, ECLI:ES:TS:2023:2735:
– National administrative or judicial bodies are not competent to judge the circumstances in which a tax residence certificate has been issued by another State nor, consequently, can they disregard the content of a tax residence certificate issued by the tax authorities of a country that has signed a Double Taxation Convention with Spain, when such certificate has been issued for the purposes of the Convention.
– For the purposes of analyzing the existence of a residence conflict between two States, the validity of a residence certificate issued by the tax authorities of the other Contracting State within the meaning of the Double Taxation Convention must be presumed, and its content cannot be rejected, precisely because the said Convention has been signed.
In addition, in the new rulings, it is established as a criterion that the expression “main core or the basis of its activities or economic interests” used in section 1. b) of article 9 of the LIRPF as a criterion to determine the tax residence in Spain, must be interpreted in the sense that in order for such criterion to be understood as fulfilled, it is necessary to take into account the set of activities and economic interests of the interested party, and therefore, in addition to the place where his income is obtained, the location of his real estate and movable assets must be considered, as well as the place from where the administration and management of the same is carried out, and any other relevant link to locate the nucleus of his activities and economic interests.
The time spent in Spain due to the state of alarm computes for tax residence purposes.
In response to the Consulta Vinculante V1358-19 of June 10, 2019, Tributos clarifies whether a worker who resides in Spain but provides services in Portugal, for the purpose of filing the income tax return in Spain, can request a refund of the withholdings made in Portugal that exceed those that would correspond to him/her if he/she had obtained the income in our country.
Being withholdings on account of a foreign tax, such withholdings will be made in accordance with the foreign regulations governing such tax. The elimination of the double taxation that may be generated will be carried out in accordance with the provisions of article 23.1 of the Agreement between the Kingdom of Spain and the Portuguese Republic for the avoidance of double taxation and the prevention of tax evasion in income tax matters and Protocol, signed in Madrid on October 26, 1993.
Consultation
The applicant, a Spanish citizen with tax residence in Spain (where his wife and daughters also live) works abroad, specifically in Portugal. The Portuguese company withholds taxes.
The applicant, as a tax resident in Spanish territory, indicates that he files his tax return in Spain with all his universal income. For which he asks if he can request the refund of the withholdings made in Portugal that exceed those that would correspond to him if he had obtained the income in Spain.
Answer of the DGT
Starting from the premise that the withholdings, which the consultant indicates are made by the Portuguese company, are not withholdings on account of Spanish Personal Income Tax but on account of the Portuguese tax and, therefore, paid to the Portuguese Treasury, for the DGT, “being withholdings on account of a foreign tax, they will be made in accordance with the foreign regulations governing the same”.
In the consultation V1699-13 -presented by the same consultant-, in which he asked if he could deduct, in his income tax return in Spain, the withholdings that had been made in Portugal, this Directive Center pointed out the following:
?as an IRPF taxpayer in Spain, he must pay this Tax for his worldwide income, regardless of the place where it was produced and whatever the residence of the payer, as derived from article 2 of the LIRPF, which states that ?the income of the taxpayer, understood as the totality of his income, capital gains and losses and the imputations of income that are established by law, regardless of the place where they were produced and whatever the residence of the payer, constitutes the object of this Tax…”.
If the employee is taxed in Portugal for the income corresponding to the work performed in that country (indicating, in connection with the employment contract with the Portuguese company, that withholdings are made from his salary in that country), the elimination of the double taxation that may arise will be carried out in accordance with the provisions of Article 23.1 of the Agreement between the Kingdom of Spain and the Portuguese Republic for the avoidance of double taxation and the prevention of tax evasion with respect to income taxes and the Protocol, signed in Madrid on October 26, 1993 (BOE of November 7, 1995), and, by reference to the latter, in the Spanish domestic legislation, by means of the application of the deduction for international double taxation regulated in Article 80 of the LIRPF, according to which:
?1. When the taxpayer’s income includes income or capital gains obtained and taxed abroad, the lesser of the following amounts will be deducted:
a) The effective amount of the amount paid abroad by reason of a tax of identical or analogous nature to this tax or to the Tax on the Income of Non-Residents on said income or capital gains.
b) The result of applying the average effective rate of taxation to the part of the taxable base taxed abroad.
2. For these purposes, the average effective tax rate shall be the result of multiplying by 100 the quotient obtained by dividing the total net tax liability by the taxable base. For this purpose, the tax rate corresponding to general income and savings income, as the case may be, shall be differentiated. The tax rate shall be expressed to two decimal places.
A decree establishes the obligation for banks to identify the tax residence of the holders or the person in control of all financial accounts.
The Council of Ministers held on November 13, 2015, through the publication of a press release issued by the Ministry of Finance, informs that it has approved a royal decree establishing the regulatory obligation for financial institutions to identify the tax residence of the persons who hold or control financial accounts, and the obligation to inform about them in the field of mutual assistance.
The Royal Decree includes the international standards in this matter, both of the European Union and of the OECD, in such a way that it will allow Spain to comply with the commitments acquired by Spain with respect to the multilateral agreement of competent authorities for the automatic exchange of information on financial accounts, signed in Berlin by 51 countries and jurisdictions (including Spain).
The content of the regulation develops, in accordance with the above, the obligation to provide information. For this purpose, financial institutions must first identify the residence of the persons holding ownership or control of financial accounts and, subsequently, provide information to the Tax Agency with respect to such accounts. Financial institutions will be required to provide the information relating to 2016 for the first time in 2017.
The approval of this royal decree allows, therefore, the exchange of annual information, in an automatic and standardized manner, on all types of financial accounts. The obtaining of this information by the Tax Agency in relation to taxpayers resident in Spain, as well as the possibility of exchanging it with other States and obtaining information from them will mean an important boost in the fight against fraud, especially the most sophisticated.
It will represent a step forward for the effective application of the Spanish tax system, as it will allow a more efficient verification of the correct fulfillment of the obligations of taxpayers who obtain financial income abroad. Thus, for example, the Tax Agency will have access to information on the persons or entities that control the financial accounts opened in Spanish and foreign entities, or it will be possible to know, automatically, the negotiable securities or investment funds that a resident in Spain has in a financial institution in countries such as Luxembourg, Austria or Ireland.
The development of multilateral agreements for the automatic exchange of information has gone hand in hand in Spain with internal tax regulations that have reinforced the work of the Tax Agency in the fight against tax fraud. In this regard, the new declaration of assets and rights located abroad (Form 720) is noteworthy.
Taxpayers have declared assets abroad for a value of more than 126,500 million euros in 200 countries, which swell the Tax Agency’s database for present and future verifications.
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