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Company A is an entity engaged in the construction business and was contracted by Company B to carry out some construction work, applying the reverse charge mechanism provided for in the Value Added Tax Law. However, after a verification procedure, the State Tax Administration Agency considers that the application of the reverse charge is not appropriate. Company A decides to rectify the invoices.

Question

Possibility of rectifying the aforementioned invoices and of Company B having the right to deduct the new Value Added Tax charged by Company A.

To read the response, download the attached document below.

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For companies subject to common regulations there are two specific annexes:

  1. Form FJD. Form for additional information on adjustments and deductions. It must be completed when the amount recorded in adjustments Other Adjustments to the profit and loss account result (box 414) is greater than 50,000 euros and/or when the amount of the following deductions generated in the fiscal year is equal to or greater than 50,000 euros:
  • Deduction for reinvestment of extraordinary income for the year, article 42 of the LIS.
  • Deduction for investments for environmental protection.
  • Deduction of research and development and technological innovation expenses.
  • Deduction for exporting companies.
  1. BSS Form. Form for Social Security rebates. In those cases in which, in addition to the deduction under article 35 TRLIS, the rebate on the Social Security contribution may have been applied.

Companies subject to the foral regulations of any of the three foral territories, together with the filing of Form 200, must attach the documentation accrediting the deductions generated.

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Ordinary shareholders' meetings are usually held during the month of June to approve the accounts and the distribution of the previous year's results. It is convenient to review some aspects related to the call of these meetings, in order to avoid conflicts.

The matters to be discussed by the Board are not normally decided within the Board, but have been previously fixed.

This is so, inasmuch as the partners or shareholders must know sufficiently in advance the aspects to be deliberated upon in order to be able to participate in the deliberation with sufficient knowledge.

This requirement is expressly established in Article 172 of the Capital Companies Act and is instrumented through the "agenda", which is a list of the matters to be discussed at a Meeting and which is sent in advance by the person convening the Meeting to those who must participate in it.

The agenda therefore defines the deliberative scope of the General Meeting, so that the general rule is that the General Meeting cannot validly adopt resolutions on matters that are not included in the agenda.

The agenda is an essential tool to enforce the shareholders' right to information regulated in Article 197 of the Capital Companies Act, understood as the right of the shareholder to request in writing up to the seventh day prior to the date scheduled for the Meeting or verbally during the Meeting (if this cannot be done at that time, the shareholder must be informed within seven days after the Meeting is held), the reports or clarifications they deem necessary regarding the matters included in the agenda.

Said power or right of the shareholder finds a correlative obligation on the part of the administrators to provide the information, unless such information is unnecessary for the protection of the rights of the shareholder, or there are objective reasons to consider that it could be used for purposes unrelated to the company or its publicity would be detrimental to the company or to the group to which it belongs.

On the other hand, information is necessary in order to have adequate knowledge of the matters to be discussed at the General Meeting and to be able to adopt a duly grounded decision, hence the importance of the agenda for the efficient operation of the Meeting.

The content of the Meeting deals with aspects related to the future of the company, i.e., it must be of a social nature, either in what affects the purely internal or corporate order, or its external relations with third parties.

Last but not least, the General Meeting decides on matters within its own competence. The principle of competence is nowadays configured as an element delimiting the scope of action of each necessary body of the corporate entity. However, despite its importance, the legislator has not been very precise in defining the competences attributed to each of the corporate bodies, which raises important problems when establishing these competences, problems that are dealt with in the following section.

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The discussion in the Spanish Parliament of the draft of the new Insolvency Law, which must enter into force no later than June 30, is currently underway. The high number of amendments (607) will make it necessary for politicians to work hard and reach a consensus on the text in order to meet the required deadlines.

In insolvency proceedings, speed is vital for a company to be able to continue operating, both during the process and to reach an agreement with its creditors. If it is slow, the stigma of insolvency becomes chronic and economic activity is penalized, jeopardizing or ending its possible viability.

It is foreseeable that the new law will lead to a lower number of appointments, but its figure, endowed with due content, power and economic recognition, must be vital to bring us closer to the agility, in terms of time, and success, in terms of the viability of insolvent companies, which we see with envy in other legal systems.

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Valuation of the transfer for valuable consideration of securities not admitted to trading in companies that have been operating for less than 3 years.

The Central Economic-Administrative Court, in a Resolution dated April 26, 2022, resolves in an extraordinary appeal for the unification of criteria, which occurs in cases in which the company has been operating for less than three years in relation to the valuation of the transfer for valuable consideration of securities not admitted to trading.

In the case at hand, the Administration understands that the fact that art. 37.1.b) of Law 35/2006 (Personal Income Tax Law) does not foresee what happens in cases where the company has been operating for less than three years leads to the interpretation made by the Inspection: to try to approximate the value of the investment with the data available. This approximation is equally valid and significant regardless of the number of years the company has been operating.

Consider that the rule establishes a maximum of results to be considered, three, but not a minimum. To totally ignore this second rule is tantamount to not applying it. In this sense, it can be understood that it is also significant that the rule has not expressly regulated this case, clearly indicating that the value of the shareholding in such a case can only be determined by the value of the net equity. Thus, in the absence of a specific regulation, it is understood that the interpretation made by the Inspectorate is in line with the rule, by virtue of which the results available to us -in this case two years- are taken and averaged by the number of years for which we have information -in this case two years-.

Well, art. 37 of Law 35/2006 (Personal Income Tax Law) contains the "specific valuation rules" for "capital gains and losses"; one of which is the one we are dealing with here -art. 37.1.b)-, specifically, if for the purpose of quantifying the transfer value by capitalization at 20% of the average of the results of the last three financial years closed prior to the date of accrual of the tax, even when the company has not been operating for more than three years, and therefore only has the results of the last two financial years -or of the last financial year-, it will be taken into consideration, and said valuation will be made on the basis of the data available.

In the specific case we are dealing with here, the market value of the non-negotiated securities transferred is the one that rules, so that if it is proven that the amount effectively paid for them is equal to or higher than that which would have been agreed upon by independent parties under normal market conditions, that will be the transfer value to be taken into account, without the need for any other consideration.

But it may happen, and in practice it is most frequent, that this proof of the market value of the securities transferred cannot be obtained; well, when this happens, the law establishes two objective formulas with which to determine the value of the securities transferred: (I) one that is based on the equity value that may be behind such securities, and (II) another based on the profitability that the entity whose securities are the object of transfer has, and a forecast (III), since it orders that from the results of those two formulas the higher of the two must be taken. These two calculation formulas operate on the basis of the accounting figures of the entity whose securities are to be valued, since they are the ones being transferred.

Having focused the matter, the Court understands that what the Director intends to do is to depart from the literal wording of one of these special rules, a wording that is clear to this Court: "The result of capitalizing at the rate of 20 percent the average of the results of the three fiscal years closed prior to the date of accrual of the Tax".

For the Court, the text of the Law is clear and is the result of the legislator's decision that the flattening of the possible variability of the results whose capitalization is what will determine the value of the securities concerned, must be carried out in a certain way; and that is, and this is expressly included in the legal calculation formula established in art. 37.1b) of Law 35/2006 (Personal Income Tax Law), considering "the results of the three corporate years closed prior to the date of accrual of the Tax". Therefore, if it cannot be applied in accordance with the literal meaning of article 37.1.b) because, once the investee company has been incorporated in the first or second fiscal year closed prior to the date of accrual of the tax, the results of the three fiscal years closed prior to this date are not available, the calculation formula based on the income obtained by the entity is inapplicable, and the valuation must be based solely and exclusively on the result of the other formula, that which takes into account the net worth.

The regulation does not state that the two mechanisms must come into play in all cases, establishing a maximum number of years to be considered. Nor does the fact that in these cases one of the mechanisms does not operate, as the Administration considers, limit the functionality of the rule. The legislator simply considers that the term of three fiscal years is adequate to consider, with the appropriate time projection, that this mechanism is efficient, expressly establishing this measure of three fiscal years.

This being so, when the literal nature of what is in question is clear, the Court understands that the Administration's claim that this clause can be applied with an interpretation that departs from its literal nature should not be accepted; an interpretation that, on the other hand, and due to the operation of the provisions of art. 37.1.b) Law 35/2006 (Personal Income Tax Law), would never operate in favor of the taxpayer, since it would be detrimental to him -when the capitalization value for the two years exceeds the value of the net worth- or it would be indifferent to him -when the capitalization value for the two years is lower than the value of the net worth-.

Finally, a clarification must be made:

The aforementioned conclusion applies to cases in which, as in the case contemplated by the challenged TEAR decision, since the investee company was incorporated in the first or second fiscal year closed prior to the date of accrual of the tax, at the latter date the results of "the three previously closed fiscal years" are not available - there are only one or two previously closed fiscal years -.

A different case is that in which the investee company has been inactive in one or more of the three fiscal years closed prior to the date of accrual of the tax and has not obtained a loss or profit in said fiscal year/s. In this case, the capitalization rule would be applied, taking the result of the fiscal year or years in which it was inactive as nil and then averaging by three. In this case, the capitalization rule would be applicable, taking as null result the result of the year or years in which it had been inactive and then averaging by three.