Spain: When should taxpayers recognise refunds of taxes declared contrary to law?
International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX
Copyright © Legal Benchmarking Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
Sponsored

Spain: When should taxpayers recognise refunds of taxes declared contrary to law?

Sponsored by

sponsored-firms-garrigues.png
money-5350262.jpg

The Spanish Supreme Court has confirmed its stance on the fiscal year in which income from a refund of taxes should be recognised, report Alejandro Fernández and Sandra Díaz of Garrigues Spain

The Spanish Supreme Court recently handed down several judgments reiterating and extending its interpretation regarding the fiscal year in which taxpayers should recognise in their corporate income tax returns the income derived from a refund of taxes declared unconstitutional.

In 2010 and 2011, the Supreme Court ruled on cases in which the unconstitutionality of the provision creating a charge supplementing the tax on games of luck had been declared, and the taxpayer had asked when it had to recognise that refund in its corporate income tax return:

  • In the fiscal year in which it accounted for, and paid, the tax being refunded; or

  • In the fiscal year in which the refund is received.

The importance of this clarification is undeniable, given that in the first case, the refund could be deemed income relating to a statute-barred year; in which case, it would not be subject to corporate income tax.

In this regard, the Supreme Court (through its judgments 2984/2010, of March 25 2010; 4046/2010, of May 25 2010; 5556/2010, of October 27 2010; 5962/2010, of November 10 2010; and 7340/2011, of November 7 2011) upheld the view that the first alternative was more lawful. Specifically, according to the court, the payment of the tax subsequently declared unconstitutional is incorrect ab initio, in so far as the effects of the unconstitutionality of the provision are not constitutive of the right to a refund of the amount incorrectly paid but are merely declaratory.

This case law on the recognition, for corporate income tax purposes, of a refund of taxes declared unconstitutional was expressly invoked by the Directorate-General of Taxes in its binding ruling V2149-13, in which it stated that refunds of port fees relating to fiscal years 1996 to 2002 that had been declared unconstitutional should be recognised as income in the corporate income tax base of the years in which the taxpayer had deducted those fees as a tax expense, regardless of when the fees had been recognised for accounting purposes.

Nonetheless, the tax inspectors’ interpretation, along with a judgment by another court – namely, National Appellate Court judgment 2988/2021, of June 23 2021 – had generated a certain debate (due to being a questionable interpretation, to say the least) about whether this case law remained in force and whether it could extend to the recognition of refunds of taxes that had been declared contrary to EU law.

As stated above, the Supreme Court has handed down judgments –200/2024, of February 6 2024; 224/2024, of February 8 2024; and 238/2024, of February 12 2024 – concluding that refunds of taxes declared contrary to EU law must be recognised in the corporate income tax base of the fiscal year in which the tax in question was paid, making reference to its case law on refunds of taxes declared unconstitutional, thereby clarifying not only the extension of that criterion but also its absolute validity, in contrast to certain theories invoked by the tax authorities to deny its applicability.

In conclusion, the Supreme Court has appeared to clarify its doctrine regarding the corporate income tax treatment of income obtained by taxpayers as a result of a refund of taxes declared unconstitutional or contrary to EU law. However, it is still important to consider all the nuances of each case, and therefore it is advisable for a tax expert to analyse the appropriate tax treatment of such income.

more across site & bottom lb ros

More from across our site

One partner believes pillar two legislation will come, while another tells ITR it depends on the country’s future political makeup
Proposals by HM Revenue and Customs to raise standards in the advisory market are ‘well overdue’, one partner declared
An intimate understanding of a client’s sector is essential to winning new business, a survey of over 28,000 corporate counsel reveals
‘Auditors are failing to perform their core function’ according to a think tank; in other news, White & Case adds a tax partner in Luxembourg
An overhaul of EU import taxes could spell the end of an exemption for cheap parcels
Sharma, managing director for A&M in the United Arab Emirates, tells ITR about intense time pressures, mimicking Jurgen Klopp and what makes tax cool
AI will speed up some of the most laborious TP processes without making human input redundant, argues Hank Moonen, CEO of TaxModel
Firms with a broad geographic reach are more likely to win work, especially from global companies with high turnovers, according to survey data of nearly 29,000 corporate counsel
Australian businessman Gordon Merchant used EY’s advice to offset an A$85 million capital gain, according to the Federal Court
Griggs has been drafted in ahead of schedule as the incumbent Tim Ryan departs for Citigroup; while the Netherlands plans to scrap a 15% share buyback tax
Gift this article