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  • From January 1, 2018, the scope for deductible expenses in terms of withholding tax will be extended.
  • On October 25, 2017, the Official Gazette of the Spanish State (“BOE”) published the much sought after Act 6/2017, of October 24, on Urgent Reforms for Self-employment, leading, among other things, to the amendment of article 30.2.5 of the Withholding Tax Act (“LIRPF”), introducing two major developments concerning deductible expenses for calculating the tax.

The first development concerns individuals that work from their homes and calculate their incomes using the direct calculation method. It allows for the deductibility of supply expenses, including water, gas, electricity, telephone and internet, at the percentage resulting from applying 30% to the existing proportion between the square meters dedicated to the activity and the total surface area, unless a higher or lower percentage is indicated.

The definitive establishing of an objective criterion to calculate the deductible supply expenses amount ends a matter that generated insecurity for the taxpayer and many lawsuits given the volatility of the criterion applied by the tax authorities.

In fact, the tax authorities have moved from a position of total rejection of the deductibility of those expenses—query V1918-10 is one such example—to a position applying more flexible criteria based on judgment 04454/2014 by the Economic and Administrative Tribunal (“TEAC”) of September 10, 2015, which, although recognizing the right to deduct, was vague and confusing when establishing the criterion to be used to calculate the tax-deductible amount: “those expenses can only be deducted if the taxpayer can prove their relationship with the earning of income. The proportion of square meters of the property dedicated to the activity would not be enough but it could be possible to make a calculation based on a combination of the square meters dedicated to the activity and the number of working days and hours dedicated to the activity in that property.”

In short, the tax authorities have moved from a position that was completely unfavorable for the taxpayer to a more flexible position, even if somewhat uncertain, that is more straightforward and objective.

The second main development is the deductibility of the self-employed person’s normal accommodation and subsistence expenses, provided those expenses relate to restaurants and hotels and are paid for using any electronic payment method. The maximum amount deductible is that established in article 9 of the Withholding Tax Regulation (“RIRPF”): in the case of no overnight stay, a daily amount of €26.67, €48.08 if abroad; with overnight stay, a daily amount of €53.34, €91.35 if abroad.

Although these changes will not have any implications for the next tax returns, they will have implications in 2018, generating a considerable tax deduction for any self-employed persons that apply them. So, do take note of this.

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