The Superior Court of Justice of Madrid has ruled in favor of two retirees from whom the Treasury claimed 50,013.09 euros for the pensions they receive from the World Tourism Organization (UNWTO) and the United Kingdom. The Chamber considers that both pensions are exempt from personal income taxas these are income from an international organization and a foreign public employment, protected by the international agreements signed by Spain with said institutions.
It all begins when two retirees residing in Spain began to collect their retirement pensions, one from the World Tourism Organization (UNWTO) and the other from the United Kingdom. When the Tax Agency reviewed the 2019 Income Tax return, it demanded payment of 50,013.09 euros in personal income tax, since it considered that both benefits constituted income from work subject to taxation in accordance with article 17 of Law 35/2006 on Personal Income Tax (can be consulted in this BOE).
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Jeanne (63 years old), retired as a nurse, tells how much she receives as a pension: “my pension is 2,000 euros; it was a real shock to see how much I lost, since I earned 3,380 euros.”
As they were not satisfied with this decision, they decided to file a claim and go to the Regional Economic-Administrative Court (TEAR) of Madrid, which agreed with the Treasury, understanding that pensions could not benefit from any exemption (except for the exceptions established by law 35/2006).
Despite this decision, the retirees decided to file a claim through administrative litigation, alleging that their pensions were covered by international treaties signed by Spain.
In the case of the UNWTO, they invoked the Headquarters Agreement signed in 2015 between the Kingdom of Spain and the World Tourism Organization, which exempts pensions paid by said organization from taxes. Regarding the British pension, they explained that the 2013 Double Taxation Convention establishes that public pensions must only be taxed in the State that pays them, so they did not have the right to be taxed in Spain.
Pensions were exempt from personal income tax due to international agreements
The Superior Court of Justice of Madrid ruled in favor of the retirees and annulled the personal income tax settlement carried out by the Treasury, that is, they were not obliged to pay the 50,013.09 euros. The Chamber explains that article 16.2 of the Headquarters Agreement between Spain and the World Tourism Organization (UNWTO) “exempts from all taxes the salaries, emoluments and benefits received from the Organization”, an interpretation that includes retirement pensions within the concept of “benefits”, without limiting the exemption only to capital benefits.
In its resolution, the Chamber ends by saying that article 20 of the same agreement establishes that “the benefits provided by any pension fund or social security institution that officially carries out its activities in favor of the officials of the Organization will enjoy the same exemptions and immunities.” In short, the pension paid by the OMT should not be taxed in Spain.
Regarding the pension from the United Kingdom, the court considers it proven that the plaintiff was an official of the British Ministry of Commerce and Industry, which gives him the right to a public pension. In this sense, the application of article 18 of the Double Taxation Agreement between Spain and the United Kingdom establishes that “pensions paid by a State or one of its entities can only be taxed in that State.” Therefore, the Court concludes that Spain cannot tax this income and that both pensions were exempt from personal income tax.
In this ruling, the key is that all contributory pensions are considered income from work and, therefore, are subject to Personal Income Tax (IRPF), as established in article 17 of Law 35/2006 of Personal Income Tax. Now, in this case, the situation is different because the pensions come from international organizations and from a foreign public job, and both cases are protected by international agreements signed by Spain.
These treaties have a higher rank than the law of Spain, which is why they expressly establish that the income paid by these organizations or States is only taxed in their country of origin or is exempt from national taxes, which prevents the Treasury from subjecting them to Spanish personal income tax.