Colombian singer Shakira, who complained that footballer Gerard Piqué had left her "with the press at the door and the debt at Hacienda," was acquitted on Monday by the National Court of the tax fraud she allegedly committed in 2011, according to the accusation of the Tax Agency, which argued that in that year the artist had her tax residence in our country, so she had to pay 55 million euros to the treasury which will now have to be returned to her.
The year after the World Cup in South Africa, Shakira went on a world tour, with 120 concerts in 37 different countries. She did not have a house in Spain, nor children, nor did she have her business headquarters in this country, as explained by her legal team, but still Hacienda considered that her tax residence was here because she maintained "a sentimental relationship with a Spanish resident," referring to the one she had with footballer Gerard Piqué. Therefore, she was forced to pay for all the profits from that tour without taking into account her expenses, which resulted in significant losses.
How is tax residence determined?
The Tax Agency has to assess whether a person has their tax residence in Spain to determine if they should be taxed for their economic activity in the Personal Income Tax (IRPF) and Wealth Tax. Traditionally, Hacienda has based its criteria on the physical presence of the taxpayer (where they spend most of the year) and the place where their center of interests -economic and personal- is located, factors that some advisors consider outdated given the current mobility of people and capital.
"There are now many more residence conflicts because it may be that several Administrations consider a taxpayer a resident in their country," admitted Eva María Cordero, professor of Financial and Tax Law at the University of Oviedo and part of the group of experts in IRPF of the Spanish Association of Tax Advisors (AEDAF).
What are the specific criteria used?
Article 9 of the Personal Income Tax Law establishes three criteria to determine if a person resides in the country. The first is the physical connection to the territory, with the requirement of spending more than 183 days a year in the country; the second is the economic connection, and the third is the family connection.
Regarding residence, Shakira presented an official certificate reflecting that since 2007 she had permanently resided in The Bahamas, a document that the Administration did not consider valid but that the Court sees as "evidential indication." "The Administration concludes that the plaintiff is a tax resident in Spain because, even admitting that she was in Spanish territory for 163 days (the appellant acknowledges 143), it adds the absences because it understands that the start of a residence in Spain has already occurred, and argues to that effect, that the plaintiff maintained a sentimental relationship with a resident in Spain," explains the sentence.
This is because Hacienda takes into account the presumed days, that is, those for which there is no proof but are between days when residence is certified.
Does it matter that she proved residence in The Bahamas?
Yes, as Hacienda criticizes it being a tax haven. The Court, in its ruling, points out that the essential and what the Administration must prove is whether the appellant is a tax resident in Spain. "Therefore, whether The Bahamas is or is not a tax haven in 2011 is irrelevant, because the appellant has proven the permanence of at least 183 days outside Spain (which is not disputed)." Thus, the judges conclude that an extended absence for a period exceeding 183 days cannot be considered occasional or sporadic, "since accepting that it was so would completely deprive the concept of habitual residence, based in turn on that of permanence in Spain, of sense and reason."
From this point of view, the sentence concludes, not having a tax residence in Spain "it is obvious that the assessments in question and the consequent penalties are contrary to the law because they are based on the idea that the appellant had her tax residence in Spain in the year 2011, which has not been proven as we have reasoned previously."
What about the other two criteria?
Since the first criterion is not met, Hacienda relies on the other two. First, on the family link, which the Court also does not share. "In 2011, there was no marital link with a resident in Spain (the Administration's assertion is that there was a sentimental relationship with a Spanish resident, which cannot be legally equated to a marital link), nor were there minor children of the appellant residing in Spain that year. Therefore, there was no family nucleus legally speaking for a foreign person," it states.
"Nor is it proven that the main nucleus or the base of her economic activities or interests is in Spain, directly or indirectly. On the contrary, the business structure attributed to the appellant is located outside the national territory, as well as the majority of her economic activity, which is carried out outside the national territory (and this is evidenced in the administrative file). Therefore, the essential element to determine tax residence in Spain, according to the Administration, is the permanence in Spain, but that permanence, as the Administration itself determines, does not reach 183 days," it concludes.
What can be expected from the appeal to the Supreme Court?
If the Tax Agency appeals the sentence, as would be expected, the Supreme Court should rule on it. The problem is that the three criteria used to determine the tax residence of taxpayers are somewhat subjective and there is no normative specification that offers sufficient legal certainty in this regard, with very diverse interpretations made by the courts, for example, regarding the center of economic interests. Furthermore, there are contradictory judgments where in some cases it is understood that if a person is employed by a Spanish company and registered with Social Security, their center of economic interests is in Spain even if they physically work abroad, while others attribute that income to the country where they operate.