It is true that once the summer holidays were over, it was time to get down to work with the third quarter taxes, but there has been a new TEAC resolution that gives taxpayers a hand, and we consider it convenient to take a few minutes away from the third quarter taxes to keep you informed, as it has a considerable economic impact on the taxpayer’s personal income tax.
The Central Economic Administrative Court (TEAC) has agreed in its recent Resolution, number 8685/2023 of 19 July 2024, to unify criteria regarding the calculation of the exemption contained in article 7.p) LIRPF (work carried out abroad).
To put ourselves in context, let us recall that article 7 p) of the Personal Income Tax Act establishes that ‘the exemption shall apply to the remuneration earned during the days spent abroad, with a maximum limit of 60,100 euros per year’, and to find out how to calculate this exemption, we had to go to article 6 of the Personal Income Tax Regulations:
“The exemption shall have a maximum limit of 60,100 euros per year. For the calculation of the remuneration corresponding to work carried out abroad, the days that the worker has actually been abroad must be taken into consideration, as well as the specific remuneration corresponding to the services rendered abroad.
In order to calculate the amount of income accrued each day for work carried out abroad, apart from the specific remuneration corresponding to the aforementioned work, a proportional distribution criterion shall be applied, taking into account the total number of days in the year’.
And we always wondered, what would happen to taxpayers who had travelled abroad for less than the duration of the calendar year, would they also have to make the proportional distribution to calculate the exemption taking into account the TOTAL number of days in the year?
Yes, and let us not forget that this has been the criterion used by the Directorate General of Taxes in many rulings issued to taxpayers, which clearly disadvantages taxpayers who have travelled abroad with an employment contract for a fixed period of less than one calendar year.
And this is precisely the criterion addressed in resolution 8685/2023 of 19 July 2024 of the TEAC.
The TEAC concludes that only in cases where the employment relationship has covered the entire financial year should the content of article 6.2 of the RIRPF be applied without exception, with the consequent division between the 365 days.
However, when the employment relationship extends over a period of less than one calendar year, the amount of non-specific earned income accrued during the days spent abroad must be calculated using the number of days corresponding to the duration of the employment contract in the calendar year in the denominator.
Once this change of interpretation has been analysed, the Personal Income Tax of taxpayers in 2024 can be calculated on the basis of this new criterion adopted by the TEAC, but there will be many self-assessments of Personal Income Tax filed in previous years that will require review in order to rectify them and request a refund of undue income, since the exemption applied at the time was less than that permitted on the basis of this new criterion adopted by the TEAC.
Therefore, MDG Advisors is at your disposal to answer any questions you may have in this regard, to provide you with the best advice on this change of criteria in the IRPF.
Leticia Cayuela Mayor.
