Justice Stops Treasury Regularizations for Foreigners with Housing Through Companies
·Date: 12/30/2024 The High Court of Justice of Madrid (TSJM) has set a precedent by requiring the Tax Agency to clearly demonstrate tax savings or fraud before proceeding with tax regularizations against foreigners who acquire luxury homes in Spain through companies. According to the court, the simple fact that the Treasury considers that a taxpayer paid less in Non-Resident Income Tax (IRNR) because a company (100% owned by the foreigner) appears as the owner of the property, is not enough to justify a regularization. The Case that Set Jurisprudence The ruling, dated October 30, analyzes the case of a Russian citizen who owned a company that, in turn, owned a luxury apartment in Marbella. The taxpayer resided in the property through a rental contract, paying rent to the company, until it sold the company, including the apartment. The Tax Agency argued that a rental transaction was being simulated to avoid paying taxes. According to the tax authorities, the company did not carry out a real leasing activity and, therefore, could not pay corporate tax or deduct expenses related to the property. In addition, it claimed that the money paid in rent was actually used to cover salaries and maintenance costs of the property. The TSJM Dismantles the Arguments of the Tax Agency The court rejected the Tax Agency’s claims by confirming that the company complied with the legal requirements to carry out the rental activity. It was registered in the Tax on Economic Activities and had a full-time employee in charge of managing the property. The ruling states that the Tax Agency did not present sufficient evidence to demonstrate that the rental concealed tax fraud or that the payment of rent concealed other purposes. In addition, it stressed that the corporate structure did not constitute, in itself, a tax simulation. Transparency in the Corporate Structure The court also stressed that the taxpayer did not conceal the ownership of the companies involved, which reinforces the conclusion that there was no attempt at simulation or concealment to obtain tax advantages. Conclusion of the Judgment The TSJM ruling makes it clear that it is not enough for the Treasury to claim that there was a tax saving derived from the corporate structure. It is necessary for the Tax Agency to demonstrate, with specific data, that there really was an undue tax advantage. Therefore, the court has annulled the regularizations carried out, setting a key precedent in the taxation of foreigners with property in Spain through companies. This ruling represents an important step forward in the protection of the rights of foreign taxpayers and establishes a higher standard for the actions of the Tax Agency.
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