In these times when it seems that we are gradually leaving behind the worst part of the crisis in terms of health, but at the same time we are going deeper and deeper into the negative effects on the economy, it is worth thinking about some elements regarding the tax system that, at least initially, were not designed or prepared for circumstances like the ones we are living.
We have seen how the generalized paralysis of the economic activity has meant a dramatic fall in business income, generating, among other things, serious short-term liquidity problems, while on the contrary, they had to deal with the payment of taxes and social contributions. In these cases, the most common reactions of governments have been to provide short-term relief solutions, based on tax payment deferrals, but basically focused on small businesses, as has been the case in Spain. Nothing structural, such as tax reductions or simplifications. Nevertheless, there are still plans to implement new tax figures, some of them on an activity that has proved so crucial to the survival of almost the confined society itself, such as the digital economy.
Focusing on already existing tax figures, and looking for those designed for the dynamization and internationalization of the economy as an element of recovery, it is worth dedicating a brief reflection to a tax benefit, one of the few that remain, that has been completely affected by the situation of the confinement and by the blockage of the movement of people. This is none other than the exemption up to 60,100 euros in personal income tax for work carried out abroad, known as “the 7P”.
Let us remember that it was originally designed as a tax incentive for the internationalization of the economic activity, but unlike others, it was designed for individuals, not for companies. Like all tax incentives, its application has generated abundant controversy with the Treasury, which, in its reviews, either in Management or Inspection, has always followed a very restrictive and formalistic approach, greatly limiting their scope and effects.
The Courts have moderated this controversy, and have defined doctrine in some cases in favor of taxpayers, in various terms: application not only to employees but to directors, application in short or irregular trips, or that the beneficiary is even the employer itself.
The root of the application of the exemption is based on a factual assumption, the physical movement of the natural person abroad. It is an Intuitu personæ aspect, not transferable, assignable or delegable to others.
It is important to add that, in the context of the state of alarm, it has not been legally possible to “physically” move people. However, all or part of the activities and functions carried out by people who previously went abroad, and allowing them to take advantage of the tax incentive without objections, have been able to be maintained, in a more or less similar way, through the use of teleworking, technology, digital signature or virtual meetings, among others, as there was no other alternative.
This controversy must be saved by resorting to the interpretation of the tax rules, since, according to the provisions of the General Tax Law and to the Article 3 of the Civil Code, these “shall be interpreted according to the proper meaning of their words, in relation to the context, the historical and legislative background and the social reality of the time in which they are to be applied, taking into account fundamentally the spirit and purpose of those rules”.
In this way, it could be discussed, in a final interpretation and adapted to the context in which the rule must be applied – mandatory refinement – whether 7p could at least be raised. In any case, it is an interesting reflection, but one that we must be careful about, since if in order to achieve the same results of internationalization, it is not necessary to move. At this point, it may be that, the tax incentive makes no sense and the Treasury ends up removing it. And like this issue, there are many other ones to discuss related to international taxation and linked to confinement: such as tax residence or PE, among others.
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