Premio Planeta wins against the Spanish tax authorities

First the courts, and now the tax authorities themselves, have definitively acknowledged that the 30% reduction in Personal Income Tax (IRPF) can be applied to the Premio Planeta. The Spanish Tax Agency (AEAT) took the view that this was not an award eligible for the tax advantages provided for literary prizes because the publisher retains the copyright.

Marta Rivera de la Cruz, a finalist in 2006, litigated against the tax authorities and won in 2012, when the High Court of Justice (TSJ) of Galicia found in her favor and allowed a 40% reduction to be applied to the prize (the statutory percentage was later lowered to 30%). Subsequently, in 2019, Mara Torres, a finalist in 2012, obtained the approval of the High Court of Justice of Madrid for the application of the 30% reduction to the prize, the second ruling of its kind. Despite this, the AEAT has continued to challenge this reduction systematically.

In fact, in 2018, the Directorate General for Taxation (DGT), in response to a request for a binding ruling (consulta vinculante) concerning a literary award, was still stating that “the prize may not entail or require the assignment or limitation of the property rights over them.” “Economic consideration deriving from the assignment of intellectual or industrial property rights, or substituting for such consideration, is not considered a prize for these purposes,” the ruling concluded.

But now, on September 27, 2023, the Regional Economic-Administrative Court (TEAR) of Madrid has accepted unequivocally that the reduction is fully applicable: “Therefore, in light of the foregoing and sharing the view taken in the previous Judgment —judgment of the High Court of Justice of Madrid of April 3, 2019—, this Court considers that the reduction provided for in Article 18 of the Personal Income Tax Law does apply, since the literary prize falls within paragraph (g) of Article 12 of the Regulations governing the Tax; accordingly, the claimant’s claims are upheld and the contested tax assessment is annulled.”

By law, literary prizes enjoy significant tax advantages, as Francisco Aguirre, managing partner of OC Tax & Legal, explains: “Some prizes are fully exempt from the tax. These are the prizes for which no consideration whatsoever is given, so there is no assignment of industrial or intellectual property rights. Where there is consideration but it is a genuine prize, as this one clearly is (remember that this year more than 1,129 original works were entered, a record), 30% of the prize is tax-free.” However, the tax authorities have taken the view that this reduction does not apply when the award is granted in exchange for the copyright, because they consider that in such cases it is a form of disguised remuneration. The aim is to prevent a literary prize from concealing a disguised payment from a publisher to an author. “It makes no sense for this to have continued to be disputed, especially when the Supreme Court itself already told them —the tax authorities— when they filed a cassation appeal (recurso de casación), that the clarity of the rules was beyond dispute,” Francisco adds.

In this way, the tax authorities have sought to tax the Planeta in full. It is endowed with €1 million for the first prize and €200,000 for the finalist, making it the largest prize in Spanish-language literature. The National Prize for Narrative, for example, is awarded to a novel that has already been published, with nothing given in return, so it does enjoy tax advantages. But whoever wins the Planeta assigns the rights to the publisher. That is why, according to industry sources, few of the prizewinners have tried to reduce their tax bill.

Laura Esteban, a lawyer at OC Tax & Legal, handled the defense of the finalist who recently obtained a decision in her favor from the Regional Economic-Administrative Court of Madrid. She explains that “the tax authorities’ rules were designed for prizes that do not derive from a prior assignment of intellectual property rights, since the cause of the prize must be a prior decision by the jury and not a prior assignment of rights agreed with the publisher, so that it is not a payment from the publisher to the author disguised as a prize. In other words, since in this case the assignment of rights took place after the prize and not before it, she was entitled to reduce her tax bill, as the TSJ of Galicia had recognized first, and the TSJ of Madrid later. We put this argument to the official who issued the tax assessment, who surprisingly replied that the High Courts of Justice of two Autonomous Communities (regions) do not oblige the Tax Agency to change the position it has held, in other words, as if it were above the law.”

In its decision, the TEAR accepts the arguments of the defense and of the High Courts of Justice of Galicia and Madrid: “From these rules, only what the plaintiff states in her claim can be inferred, namely that where a prize involves no consideration whatsoever, and therefore there is no assignment of industrial or intellectual property rights, the amount received for the prize is fully exempt.” As for “the remaining prizes, in which there is consideration, which is usually the exclusive assignment of the exploitation of the literary work and of the intellectual property rights over it, they would not be exempt, but they could benefit from the 40% reduction (currently 30%).”

Thus, after Marta Rivera de la Cruz and Mara Torres, another finalist has succeeded in obtaining these tax advantages after prevailing in the courts.

Francisco Aguirre, the lawyer who led the defense, explains that “This closes the book on a question that has been going around for years, even though the rule is clear, and at last the tax authorities themselves, through their Regional Economic-Administrative Court of Madrid, acknowledge this. Sonsoles Ónega and Alfonso Goizueta now have greater legal certainty that they can apply the reduction.”

Moreover, this opens the door for winners and finalists to request a refund of overpaid taxes, as Laura Esteban explains: “all prizes that are not time-barred, that is, those received in 2019 and subsequent years, can apply this reduction, and a refund of the overpaid IRPF can now be requested.”