BackIn a scenario before the Central Economic-Administrative Court (TEAC), a discrepancy arises where the Administration does not accept the application of the specific provision regarding expense deduction found in article 24.6 of Royal Legislative Decree 5/2004 (Consolidated Text of the Non-Resident Income Tax Law). This provision is relevant for residents of the European Union and the European Economic Area, as well as for the tax rate of 19%.
First, it is necessary to resort to the bilateral agreement between the involved states. As stipulated in the Agreement between the Kingdom of Spain and the Swiss Confederation, Spain has the authority to tax income generated from the rental of real estate located in Spain and received by a resident in Switzerland, in accordance with its internal regulations.
In accordance with the agreement along with the applicable regulations, income obtained by a resident in Switzerland through the rental of a property in Spanish territory is subject to taxation in Spain. These incomes are governed by the general rule established in Article 24.1 of Royal Legislative Decree 5/2004 (Consolidated Text of the Non-Resident Income Tax Law), meaning that the taxable base will be the total amount accrued, without allowing for the deduction of expenses or the application of multiplier percentages or reductions mentioned by the interested party according to Article 23.2 of Law 35/2006 (Personal Income Tax Law). Additionally, the applicable tax rate will generally be 24%.
Spanish regulations establish different tax regimes depending on the fiscal residency of the taxpayer: fiscal residency in the European Union or the European Economic Area (EEA) is required to apply the reduced tax rate and expense deduction, while only residents in Spain can access the reduction of rental income according to Article 23 of Law 35/2006 (Personal Income Tax Law). The interested party argues that this distinction based on the fiscal residency of the taxpayer violates EU regulations and jurisprudence.
In the absence of objections arising from a procedure of the European Commission or judgments of the Court of Justice of the European Union (CJEU) or the Spanish Supreme Court applicable to the case, and considering that no modification has been made to the internal regulations allowing expense deduction for non-EU residents or the application of the tax rate corresponding to EU residents, we must continue applying Articles 24 and 25 of Royal Legislative Decree 5/2004 (Consolidated Text of the Non-Resident Income Tax Law) in its current version. Therefore, the taxable base will remain the total amount accrued, without the possibility of deducting expenses established in Law 35/2006 (Personal Income Tax Law), and a tax rate of 24% will be applied.
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