THE TEAC ISSUES ITS RULING ON THE FISCAL ASPECTS OF UNIT LINKED. APPLICATION OF THE REDUCED RATE IN CATALONIA.
The tax team at CORTÉS, ABOGADOS has acted before the Central Economic-Administrative Tribunal (“TEAC”) to defend the interests of taxpayers who are beneficiaries of a Unit Linked typed life insurance policy in Mixed Life mode, in which the taker was a different person to the beneficiary, with discussion of whether it was appropriate to apply the reduced rate of Successions and Donations Tax (“ISD”) foreseen in Article 57.2 of Act 19/2010, of 7th June, on regulation of the tax, in its original text, for donations and juridical transactions that are comparable to donation, formalised in a public deed, on the contrary to the posture of the Tax Agency of Catalonia, that defended application of the general tariff, which is considerably higher.
The Tax Agency of Catalonia maintained that it was not appropriate to apply the reduced rate of the ISD, but rather the general rate, as it understood that the formal requisite of the juridical transaction comparable to a donation being formalised in a public deed had not been fulfilled. Specifically, that Administration understood that, for the purposes of understanding that requisite to be fulfilled, the document to be formalised by public deed was the insurance policy contract between the taker and the insurance company and that such a contract should be instrumentalised by a public deed at the moment of it being entered into or formalised, it not being valid to notarise any other document or notarial certification, that neither completed the insurance contract nor determined its accrual, as was the case of the deed of acceptance as a beneficiary of the life insurance.
On the contrary, the taxpayers advised by CORTÉS ABOGADOS, maintained that it was appropriate to apply the reduced rate of ISD as the juridical transaction comparable to a donation took place when the contingency of survival arose and the beneficiaries applied for and accepted the survival payments foreseen in the insurance contracts; and that, thus, formalisation in a public deed had to be performed by the beneficiaries of the insurance contracts when the beneficiaries accepted payment of the survival settlement, as they actually did.
Finally, the TEAC has declared that the taxpayers are right, handing down a recent Ruling that clearly and decisively records the interpretation that it is indeed appropriate to apply the reduced rate of ISD as all the requisites for that had been fulfilled. Specifically, the Resolution considers that the formal requisite of notarisation that is established in the rule for application of the rebated rate must be demanded at the moment of the beneficiary accepting such sums, and not that of the insurance contract, as was intended by the Tax Agency of Catalonia. The Resolution posits the arguments raised in the claim and establishes that the taxable event is not the insurance contract, but rather the act by which the beneficiary of the insurance acquires the right to receive the sum foreseen in that contract and that “the formal requisites established to apply a rebated rate are considered in the typical free transaction between the living (donation) that is formalised by the intervention by both parties: donor, who delivers the asset, and donee who declares their acceptance”, so that “the formal requisite must be adjusted to the true nature of the contract, bearing in mind that the contract is perfected between parties other than the beneficiary and that only when the right falls due to the beneficiary (which is the moment when, under the tax law, they are assigned the status of “donee”) and the taxable event accrues, may it demand fulfilment of a public document by acceptance of the capital insured”. On the basis of the foregoing, the TEAC recognises, in the specific case claimed, correct application of the rebate.
The TEAC bases this on the binding query to the Directorate General of Taxes, CV V0864/18, filed by the taxpayers in the claim, that precisely determines that the taxable event of the Successions and Donations Tax is not the actual insurance contract, but rather the act by which the beneficiary of the insurance acquires the right to receive the sum foreseen in that contract and, thus, as it is a taxable event with an increase in assets under lucrative terms due to receipt of sums from an insurance policy by the beneficiary, the tax is accrued at the moment when the sums fall due.