Differing interpretations regarding the review of statute-barred tax periods
The Corporate Income Tax Law (Article 25.5) stipulates that a taxable person is required to substantiate the appropriateness and amount of tax losses to be offset by presenting the corresponding assessment or self-assessment, accounting records, and relevant documentary evidence, irrespective of the period in which the losses were generated. The General Tax Law contains a similar rule (applicable to any kind of tax base or tax payable offset or pending offset, and tax credit applied or pending application) in its Article 106.5, which is supplemented by Article 70.3.
The tax authorities take these rules to mean that tax bases and other incentives from statute-barred years can be reviewed provided that they have an impact on years which remain open to inspection.
However, a number of judgements relating to this question handed down by the Spanish Supreme Court have affirmed that there are limitations to the Administration’s powers to verify amounts deriving from years which have become statute-barred. These include its Judgement of July 4, 2014 (cassation appeal no. 581/2013) in which, having related the authorities’ powers of verification to the principle of legal certainty, the Court reaches the conclusion that there are limits to these powers and, specifically, rejects the possibility of making a finding of fraud in respect of a transaction performed in a statute-barred period which, moreover, had never been reviewed.
The Central Economic-Administrative Tribunal (TEAC), however, has disassociated itself from the criterion upheld by the Supreme Court, affirming (in two decisions dated September 11, 2014 which are discussed in our newsletter) that fraud upon the law can be declared in respect of a transaction performed in a statute-barred tax period if it has an impact on another period which has not become barred. In the TEAC’s view, it is not bound by the position adopted by the Supreme Court since there has been only one judgement along the lines of that of 4 July, and because there are also other judgements of the National Appellate Court relating to similar cases, which have been appealed against at cassation level by the authorities.
In relation to this latter argument, it is to be noted that the National Appellate Court, on October 2, 2014, handed down another judgement in terms similar to those of the Supreme Court’s decision of July 4.
Garrigues Tax Department