The high court has admitted an appeal in the case of a natural person whom the Tax Administration considered a tax resident in Spain for having significant real estate assets in Spain, despite the fact that he did not reside in Spain for more than 183 days and who carried out his work abroad, also having a tax residence certificate from a country, Morocco, with which there is a double taxation agreement.
Criteria for tax residence in Spain
Although the best-known criterion for determining tax residence in Spain is permanence, that is, a person who remains in Spanish territory for more than 183 days is considered a resident in Spain, in reality there are two legal criteria for determining residence of a natural person in Spain:
- That the person stays more than 183 days, during the calendar year, in Spanish territory.
- That the main nucleus or the base of its economic activities or interests reside in Spain, directly or indirectly.
That is why the Treasury Inspectorate, when it cannot prove enough days of permanence in Spanish territory, analyzes the existence of income from a Spanish source and assets located in Spain, and compares it with the income and assets of the person in the another country of which you claim to be a resident.
If the Tax Administration considers that the income and assets located in Spain are more relevant than those located in the other country, then it considers the person as a tax resident in Spain for all purposes, having to pay taxes on their income and world assets.
Case to be analyzed by the Supreme Court
The case on which the Spanish high court must rule is that of a person with dual Moroccan-American nationality and who, being a tax resident in Morocco and having a tax residence certificate issued by the authorities of that country, had important real estate assets in the Canary Islands.
Despite having the aforementioned certificate of tax residence, and despite the fact that the work carried out by this person was carried out outside of Spain, the Tax Administration considered that the main nucleus of his economic interests resided in Spain and that, consequently, he should be taxed in Spain for all of the worldwide income in the years subject to regularization.
Fixation of jurisprudence regarding the determination of tax residence
Once the administrative route (Economic-Administrative Courts) and the contentious-administrative route have been exhausted, the matter has reached the hands of the Supreme Court, which has admitted the appeal filed by the taxpayer.
For this reason, the high court has determined that it must establish jurisprudence on several issues, which are of absolute relevance not only for the taxpayer who has filed the appeal, but for many people who are in a situation similar to that of the case in question, that is to say, that actually residing outside of Spain they have significant assets in Spanish territory or obtain income from a Spanish source.
Specifically, the issues on which the Supreme Court will rule are the following:
- Determine whether a judicial or administrative body can dispense with the content of a tax residence certificate issued by the tax authorities of a country that has signed an Agreement with Spain, when that certificate is issued for the purposes of the Agreement.
- Clarify whether, for the purposes of analyzing the existence of a residence conflict between two States, it is possible to reject the content of a residence certificate issued by the tax authorities of the other contracting State in the sense of the CDI, or the validity of that certificate must be presumed, and its content cannot be rejected, precisely because the aforementioned CDI has been signed.
- Elucidate whether it is possible for a State that is a signatory to a CDI, unilaterally, to prosecute the existence of a conflict of residence, dispensing with the application of the specific rules endorsed in the aforementioned CDI for these cases. Specifically, if in the presence of a conflict of residence, it is necessary to resort to the rules provided for its solution in the CDI, requiring for this an autonomous and separate interpretation of the internal rules that contain similar concepts and, more specifically, if the ” tiebreaker rule” provided for in article 4.2 CDI, consisting of the “centre of vital interests” is comparable to the concept of “core economic interests” in article 9.1.b) LIRPF.
- Determine whether the expression “main nucleus or base of its activities or economic interests” used in article 9.1.b) LIRPF as a criterion to determine tax residence in Spain, can be interpreted in the sense that it is enough, so that it is understood that such criterion, with the interested party being the owner of real estate or personal property in our country, from which no income originates. Specifically, if that single circumstance is sufficient, by itself, to invalidate the effectiveness of a tax residence certificate issued by the tax authorities of a country that has signed a CDI with Spain, when that certificate is issued “for the purposes of that CDI”.
We will therefore be very attentive to what the Supreme Court finally decides in this case, given that its decision will mark a before and after in order to analyze the cases of tax residence abroad that are the subject of discussion by the Tax Administration, based on the criterion of the center of economic interests.
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