According to the Spanish Personal Income Tax (“PIT”) Act, for tax purposes, individuals will be considered a tax resident in Spain in a calendar year if, among other circumstances, they spend at least 183 days on Spanish soil within said calendar year.
Against this backdrop, the OECD recommended, in a guideline entitled “Analysis of Tax Treaties and the Impact of the COVID-19 crisis”, that periods spent in a country due to force majeure events, such as the state of emergency declared in Spain on the back of the COVID-19 crisis, should not be taken into account for determining the tax residency of individuals (this criterion has already been adopted by countries such as the United Kingdom, Ireland and Australia). However, this is only a recommendation which the different countries are not obliged to follow.
Under this scenario, the Spanish Directorate-General of Tax issued a different criterion in its binding decision V1983-20.
In such ruling, the Directorate-General stated that the days spent in Spain by a Lebanese family locked down in the country as a consequence of the state of emergency declared by the Spanish Government due to the COVID-19 crisis should be taken into account for determining the tax residency of the members of such family during 2020.
According to the above, individuals that spend more than 183 days in Spain in the 2020 fiscal year (even if forced to do so by the circumstances of the COVID-19 crisis) could be deemed as Spanish tax residents in said fiscal year and, consequently, taxed under the PIT and Spanish Net Wealth Tax on a worldwide basis.
Notwithstanding the above, in our opinion, the criterion followed by the Spanish Directorate-General of Tax considers, at least indirectly, that the Lebanese family voluntarily decided to spend part of the abovementioned 183 days in Spain.
On the other hand, in an extreme case, where the circumstances oblige a specific individual to spend more than 183 days in Spain regardless of a voluntary decision (e.g. poor health), it would be reasonable to defend that the days spent in Spain should not be taken into consideration for tax residency purposes. However, this is not a clear-cut issue and the likelihood of claims arising between the Spanish Tax Authorities/courts and taxpayers will be high.
Additionally, in this ruling, the Spanish Directorate-General of Tax based its argument on two facts: (i) there is no Double Tax Treaty signed between the Lebanon and Spain; and (ii) the Lebanon is a tax haven for Spanish tax purposes. However, within the arguments disclosed there is no mention of said issues in the Directorate’s conclusions. In other words, the 183 days would be sufficient for determining tax residency in Spain, irrespective of whether, at a subsequent stage, the provisions of a potential double tax treaty could be invoked.
Finally, please bear in mind that said criterion could also affect the Spanish Inheritance and Gift Tax and determining the Autonomous Region where a Spanish tax resident habitually lives during the 2020 fiscal year.