The Supreme Court accepts an appeal by which it will have to decide whether the withholding at source to which non-resident taxpayers are subject should be carried out on the entire income or on the net income, deducting the expenses directly related to the activity that generates the non-resident’s Spanish source income.
• The Spanish regulations on Non-Resident Income Tax (“IRNR”) determine that taxpayers obliged to withhold must practice an amount equivalent to that resulting from applying the provisions provided for in the Law to determine the tax debt corresponding to non-residents taxpayers without permanent establishment or those established in an agreement to avoid double taxation that may be applicable.
• Said rule maintains the provision for calculating withholding taxes on gross amounts despite the modification carried out in the IRNR Law since 2010, to adapt it to EU regulations, and which allows the deduction of expenses related to income obtained in Spain by EU residents from the IRNR tax base.
• The Supreme Court Order dated May 22, 2024, determines that the issue that presents objective cassational interest for the formation of jurisprudence consists of:
- Determine whether it respects the European Union principle of free circulation of services – and the prohibition of restrictions on their free provision, ex art. 56 of the Treaty on the Functioning of the European Union – an internal law such as the Non-Resident Income Tax Law that imposes on the payer of income for services provided by a non-resident entity without permanent establishment the obligation to retain and deposit an amount calculated on the full returns.
- In particular, taking as a starting point the classification of income obtained by an entity resident in Ireland (paid by another resident in Spain) as royalties, and since, in accordance with the Convention to avoid double taxation between Spain and Ireland, must be taxed in Spain, specify whether the basis on which the withholding rate is to be applied must be after deduction of expenses directly related to the activity; or, on the contrary, without the possibility of making that deduction of the necessary expenses.
• The Supreme Court had already ruled on this issue in a ruling of February 9, 2016 (cassation appeal no. 3429/2014), considering the situation of the non-resident non-discriminatory, understanding it to be compensated with other tax benefits, such as paying taxes at more favorable rates. However, in light of subsequent rulings by the EU Court of Justice, that has repeatedly declared that unfavorable tax treatment contrary to a fundamental freedom cannot be considered compatible with Union Law due to the possible existence of other advantages, it considers it necessary to review this doctrine.
Publicado el 09-2024 por PBS