In a recent Court resolution of 28 March 2019, the Spanish Supreme Court has clarified that the Personal income tax (PIT) exemption ruled in article 7 p) of Spanish PIT Law, which benefits employment income exercised overseas, applies if the Spanish employer is also the beneficiary of the employment service.
This exemption was originally passed in order to facilitate employees’ mobility overseas and, at the same time, support the internationalization of Spanish companies.
Its practical application has always been hampered by a restrictive interpretation of its requirements by the Spanish Administration, which has tended to impede its implementation by Spanish employers. Hence, a clarifying interpretation of its requirements constitutes a positive contribution towards legal security of taxpayers.
✔ The Court analyses the application of the exemption on employment income accrued during the days of permanence overseas, with the annual limit of 60,100 €.
✔ Such exemption applies providing that the following requirements are met:
- The work must be effectively developed overseas.
- The territory where the work is exercised must apply a tax similar in nature to Spanish Personal income tax and it cannot be qualified as a tax haven.
- The work must be developed for a non – resident entity or a permanent establishment located overseas. If the work is done for a company which is tax – related with the Spanish employer, or with the company for which the services are rendered, it shall be necessary that the services imply an advantage or benefit for the beneficiary company.
✔ The concrete case studied by the Court relates to a public servant assigned to an international organism located overseas and of which Spain forms part. The Court concludes that there is no limitation in the current regulations in order to apply the exemption, if the Spanish employer also benefits from the service, as well as said organism.
✔ The are other arguments in the Judgement which are also worth taking into account such as the fact that the Law does not prohibit that the overseas works consists of supervision or coordination duties or that it does not require a concrete length of time staying overseas, thus accepting sporadic stays.
✔ With this new Spanish Supreme Court interpretation, the Spanish tax authorities should not establish limits on the application of this tax benefit, beyond those established by the Law.