Although there are multiple concepts of the word “border”, the most common alludes to a line that separates one State from another. It is a physical element, although unrelated and not subject to the tyranny of nature. Irredentisms aside, borders are the result of a human convention (after or not after a previous state of war) through which each party exercises its power over the territory that extends to one or the other side of the border. The old nation-state exercises its increasingly limited sovereignty over this geographical space.
In the middle of the 19th century, a great German thinker in exile in London predicted “the growing development of the productive forces” as a catalyst for a series of transformations (revolutions, he called them, assigning violence the role of “part of History”). in all social environments: political, economic, cultural… Naturally, at the heart of “the productive forces” the cumulative use of technology and its geometric progression beat faster and faster.
In the 70s of the last century, the advancement of communication and transportation technologies was the direct and immediate cause of the process that we have called globalization. This phenomenon has reinforced, within the set of factors of the economy, which until then was subject to greater rigidity and less elasticity of supply: the labor factor. Public health needs have provided even greater elasticity to this factor, thanks to the extraordinary development of employment modalities, such as teleworking. This form of job performance, within the world-economy that governs our economic life, has further weakened the powers of state power, especially in the tax field. Like it or not, the social democratic pact is in the phase of liquidation by demolition and all Western states (whatever the chromatic nominalism invoked by their leaders in turn) have renounced tax equity in the name of economic efficiency.
The transition from the nation-state to the global economy induced by “the development of the productive forces” has “repealed” the prophecy of the German philosopher. The transit has been done peacefully, which in no way means that it is legitimized by democratic reason.
After the homily has been said, let us draw the picture of reality.
The ‘factual’ background
A Spanish national crossed the line into Portugal in a westerly direction. The “event” happened in 2019. However, and almost without a solution of continuity, our man (whom I will baptize as Juan Español) said goodbye to his employer in French style and went to the house he had rented in the same indeterminate town of Portugal. He sat next to the stretcher table in the living room, opened the computer and typed in the name of the website of the company domiciled in Seville, La Bética, with which he had just signed an employment contract. How do you provide his labor services? Bingo for the speaker! Through teleworking (as I myself am doing at this precise moment). Finally, I will say that Juan Español, single and childless, owns a house on the other side of the border (specifically in Llanos del Caudillo) which, before his voluntary exile, was his habitual residence and which, currently, has leased to a third party.
What Juan Español did not know was in which country he had to declare his work income. For this reason, he evacuated the opportune consultation to the General Directorate of Taxes (DGT). He went on to summarize, as if it were condensed milk, the official response.
The DGT starts from the Spanish-Portuguese agreement to avoid double taxation, interpreted in accordance with the guidelines of the OECD model agreement (article 15, income from dependent work). The Spanish-Portuguese agreement uses the concept of habitual residence as a link or determining factor to select the applicable legislation, referring to the internal law of each country in order to locate that residence. The Spanish regulation (Law 35/2006, article 9) defines the concept of habitual residence in an alternative way:
A) Permanence in Spanish territory for more than 183 days in the calendar year.
B) The establishment in Spain of the “main nucleus or the base of its activities or economic interests”. Surprisingly, the DGT washes its hands of this type of residence: without blushing, given that the “main core” is a factual circumstance that must be appreciated by the management and inspection bodies of the Tax Agency. Is not the permanence of an individual in Spanish territory for a certain time also a physical fact? The DGT incurs in a very clear assumption of “non liquet”, a resignation of its legal duty to assist the interested party by communicating its interpretation of the tax law.
In any case, it is presumed, unless proven otherwise, that a person resides in Spain when their spouse and minor children do so.
The DGT rules out the alleged power of the Spanish Treasury to demand from Juan Español the self-assessment of the IRP for the returns provided by teleworking. The senior management body highlights the existence of the permanent address in Portugal, even though it is not the owner of it and its title of occupation derives from a rental contract. Said condition attributes to the country of Viriato the exclusive competence to tax “the world income” of Juan Español. Therefore, the teleworker will only be taxed in our territory by income from a Spanish source (such as the Llanos del Caudillo rental grant), and by the Non-Resident Income Tax. Naturally, the Sevillian company will not have to make withholdings to enter them in a tax organization that is not authorized to receive the IRFF quotas accrued by Juan Español.
According to article 15 of the OECD model agreement, the income from work corresponds to the State in which the recipient resides. So, the DGT concludes, “… cannot be subject to taxation in that other State with respect to said remuneration for the mere fact that the results of the work are exploited in that other State.” And he continues: “Therefore, the income from work derived from teleworking from a private address in Portugal for a Spanish company is only taxed in Portugal if the consultee is a tax resident in Portugal and exercises employment in that State.”
Constitutional patriotism or profit motive?
Very good. We already know that Juan Español has eluded the embrace of the bear Marisu Montero. But how will he fare on the other side of the border? Better, much better. Juan Español has left Malagón to enter Malaga. Naturally, his move has not been a honeymoon trip. But, with the exception of Value Added Tax, Juan Español wins. Let’s make a comparison without statistical pretensions:
1.- The maximum marginal rate of personal income tax can reach 54% in Spain (depending on the regulation of the corresponding autonomous community). In Portugal, where the Tax is called “Tax on the Income of Singular Persons”, the maximum rate is 48%.
2.- In Portugal there is no Wealth Tax.
3. Neither are property acquisitions of a free nature (inheritances and donations) taxed in the neighboring country.
4.- Regarding the Property Transfer Tax, in Spain the tax rates fluctuate within a range in which the antipodes are 1.5% and 15%. The Portuguese are much narrower (0 and 6.5%, respectively).
1st.- There is a “call effect” for “the solemnly poor”, like the Africans who risk their lives in the Mediterranean on the trip to its north shore.
2ª.- There is another “call effect” for millions of people who seek anonymity. In this case the magnet is the “non-cooperative jurisdictions”.
3ª.- Finally, there is a third “pull effect” for the middle classes that want to prosper. It is the so-called information technology, it complies completely with the law and is immune to any penalty because it is not a sin, it is not fattening and it does not constitute a criminal or administrative offense.