Tax Controversy 2019 Comparisons

Last Updated May 24, 2019

Contributed By Andersen Tax & Legal

Law and Practice

Authors



Andersen Tax & Legal in Spain has offices in Madrid, Barcelona, Valencia and Seville and a presence in Bilbao through a collaborating firm. With more than 250 professionals in Spain, Andersen Global adds a further 4,000 professionals and 140 offices in our worldwide network. The tax team in Spain is comprised of 50 professionals who assist clients in evaluating and mitigating the tax risks of projected transactions, representing clients in all tax controversy matters, including audits and appeals before competent tax authorities at trial and in litigation. Advising Spanish and foreign companies both nationally and internationally, the firm’s practitioners propose solutions tailor-made for clients’ day-to-day business as well as major restructuring transactions, due diligence, divestitures, commercial transactions, project financing and tax planning, among others.

Under Spanish Tax regulations, tax controversies arise either through actions of the tax authorities ex officio or of taxpayers pro se. Pro se proceedings are initiated through self-assessment, declaration or other communications provided for in tax legislation. However, filing a tax return does not result in automatic scrutiny.

Tax proceedings are categorised under:

  • tax compliance;
  • audit;
  • infringement;
  • criminal proceedings; and
  • recovery of unlawful aid.

All tax types can give rise to tax controversies, though the Spanish tax authorities publish the General Guidelines of the Annual Tax and Customs Control Plan each year detailing priorities. In the 2019 guidelines, priorities include:

  • verification and investigation of tax and customs fraud targeted at the discovery of undeclared taxable items;
  • fraud control in tax collection to ensure effective collection of debts by the Spanish Tax Agency (Agencia Tributaria);
  • increased co-ordination with regional tax authorities (Comunidades Autónomas) to increase efficiency, improve assistance to taxpayers and detect fraud and non-compliance; and
  • prevention of non-compliance through development of quality information and assistance services for taxpayers, prioritising the use of new technologies over traditional means.

There is not a strict pattern to avoid tax controversies, beyond compliance with tax obligations by taxpayers. A Code of Good Tax Practices issued through a collaboration between the Large Businesses Forum and the Spanish tax authorities provides a framework to strengthen transparency and foster co-operation with the Spanish tax authorities. The purpose of the Code is to provide greater certainty in the interpretation of tax rules and decrease the risk of tax controversies. As of 31 December 2018, 141 companies have subscribed to the Code.

Taxpayers may also request binding rulings before the General Directorate of Taxes. The process for requesting binding rulings is discussed in 6.4 Avoiding Disputes by Means of Binding Advance Information and Ruling Requests, below.

Generally, the Spanish Tax Administration and Courts follow regulations issued by the OECD.

Spanish Tax legislation closely aligns with BEPS. Additionally, many rulings from the Spanish General Directorate for Taxes and the Spanish courts are based on the BEPS recommendations, thus increasing tax controversies in situations such as weak substance structures, wholly artificial schemes, permanent establishments of digital business (distributors), transfer pricing, hybrid mismatches, etc.

The Spanish General Tax Law provides several ways to postpone, split or suspend debts by means of a guarantee.

In certain cases, the guarantee can be in the form of a mortgage, pledge, personal and joint security or other method determined by the tax regulations.

Taxpayers are exempt from providing a guarantee when:

  • the amount due is lower than the amount stated in the particular tax regulations;
  • the taxpayer does not have enough assets to guarantee the amount due;
  • the foreclosure over the taxpayer's estate could affect its productive economic activity; or
  • it could cause serious losses for the Public Treasury.

In Spain, at the national level, the Administración Estatal de Administración Tributaria (AEAT) administers tax audits and inspection procedures. The AEAT deploys a range of controls and procedures of varied scrutiny.

The primary guidelines for AEAT procedures are published in the Annual Tax and Customs Control Plan (Plan Anual de Control Tributario y Aduanero). The Annual Control Plan is classified, except for general guidance focused on three areas of tax audits explained in 1.2 Causes of Tax Controversies, above.

In recent years, the most significant risk areas for audit under the Annual Control Plan have included:

  • informal economic activities;
  • international tax planning;
  • digital economy;
  • aggressive tax planning;
  • organised VAT fraud schemes;
  • high-value personal services; and
  • special tax regimes.

Initiating a Tax Audit

Generally, a tax audit will begin in one of two ways. First, a taxpayer may receive a written notice from the Spanish tax authorities to initiate a tax audit. In this notice, the taxpayer is informed of the nature and scope of the audit as well as its rights and obligations.

Second, auditors may initiate an audit without prior notice by appearing in person at a taxpayer's offices or facilities, (subject to the limitations for 'constitutionally protected domiciles' described in 2.3 Location and Procedure of Tax Audits, below). A responsible person, or person in charge of or responsible for physical locations, must be present for auditors to proceed.

The initiation of an audit will produce two effects:

  • commence the prescribed audit period (see below); and
  • bring the applicable statute of limitations to an end.

Scope of Tax Audits

The scope of tax audits may extend to one or more tax types or tax periods and have a general or partial scope.

An audit is considered to have a partial scope if:

  • it does not cover all of the elements of a tax;
  • it covers the compliance requirements for an incentive or benefit; and/or
  • it covers a refund claim.

All other situations are deemed to have a general scope.

Any taxpayer who is subject to a partial tax audit may, within 15 days, request extension of the audit's scope from partial to general with respect to the tax and, if applicable, periods affected by it.

Audit assessments from a partial audit are considered provisional. When a tax audit closes with a provisional assessment, the subject of the audit may not be reassessed in a subsequent audit, except if:

  • the tax liability was based on other obligations not previously audited;
  • the tax liability was determined through a provisional liquidation or a liquidation that was not final; or
  • the tax liability's final verification would not be possible.

Audits of general scope will give rise to final assessments.

Duration of a Tax Audit

The duration of a tax audit is a term of either:

  • 18 months generally; or
  • 27 months for companies with an annual turnover above the threshold amount to audit their financial statements or consolidated groups.

The term of the audit starts from the date of actual notification to the taxpayer. Corporates are notified electronically.

Tolling of the audit term will occur, inter alia, as a result of:

  • transfer of the audit file to the Public Prosecutor or other competent body without an assessment;
  • a court order or similar action from a competent body ordering the suspension with respect to certain obligations or elements of the audit;
  • failure to notify to the taxpayer the resolution or final assessment; or
  • force majeure.

The taxpayer may, before the opening of the hearing process, request one or more time extensions to meet the requirements of the audit procedures. Extensions may not exceed a total of 60 calendar days for the entire audit and will also extend the normal audit term.

If, during an audit, the taxpayer is unable or unwilling to provide the requested documentation after three formal requests from the administration, a three-month extension will be allowed if the documentation is finally sent, if at least nine months have elapsed from commencement of the audit. An extension of six months may be granted in the case that documentation is finally provided to the administration following the assessment or 'acta' and the administration resolves to conduct complementary actions.

Failure to comply with the term limits of a tax audit will not automatically cause expiration of the audit, but will cause:

  • the statute of limitation not to be interrupted as a consequence of audit procedures carried out previously;
  • any payment of the tax before the audit procedure is restarted to be treated as 'spontaneous' and, therefore, the tax settled, with no possibility of penalties being imposed; and
  • no interest to be required on late payment from the term limit to finalise the audit.

When a judicial or administrative order resolves a defect in the audit, it may instruct that the audit procedure be repeated during the time left in the audit term, or during the following six months, if there is insufficient time.

Generally, tax audits take place at the:

  • domicile or offices of the taxpayer;
  • situs of taxable activities; or
  • offices of the tax authorities.

For the examination of books and records relating to economic activities, the location of the audit will be carried out at the domicile, premises or offices of the taxpayer, unless the taxpayer consents to examination in public offices or any other location.

The auditors decide the place, day, time and which actions will be performed during the tax audit. Data may be provided to auditors electronically or physically, as agreed to by the parties.

If, during the tax audit proceedings, it is necessary to enter a 'constitutionally protected domicile', the tax auditors must have the consent of the interested party or the corresponding legal authorisation.

Constitutionally protected domiciles are places separate from the external physical environment, with restricted access and some kind of privacy, ie, where one or several individuals or corporates permanently or occasionally carries on their private life.

Premises open to the public are not considered to be constitutionally protected domiciles during opening hours.

Auditors may examine books and records, accounts, invoices, tax correspondences, computer databases and any other supporting documents.

Auditors may also request information from relevant third parties such as banks, utilities and other jurisdictions without giving notice to the taxpayer.

In addition, auditors take use precautionary measures to prevent the disappearance, destruction or alteration of records.

The AEAT may carry out actions at the request of competent tax authorities of other jurisdictions. In such actions, officials from such jurisdictions may be present. Similarly, representatives from AEAT may be present in other jurisdictions to carry out reverse requests.

Taxpayers should comply with their obligations during a tax audit to ensure co-ordination and good standing with auditors. This includes appearing before auditors when requested, providing requested documentation and remaining amenable to co-ordination with the administration.

Taxpayers must provide requested information in a coherent, truthful and complete fashion.

The administrative claim procedure in Spain is composed of two phases:

  • administrative appeal before the administration that made the assessment (recurso de reposición); and
  • appeal before a Tax Court (Tribunales Económico-Administrativo).

After all administrative channels have been exhausted, taxpayers may proceed to the courts of law (jurisdicción contencioso-administrativa).

In addition to the standard appeals procedures, there are certain special review procedures used in exceptional cases, which are usually initiated by the tax authorities.

It is notable that administrative appeal procedures do not require the representation of a lawyer or solicitor (procurador).

Administrative Appeal (Recurso de Reposición)

Features

The administrative appeal is the primary way to contest a tax audit assessment.

Taxpayers may challenge tax authorities and request abatement by submitting the assessment for review. The administrative appeal is submitted to the same tax authority that issued the assessment.

Administrative appeals are optional, meaning the taxpayer can file a claim directly before the Tax Court without first filing an administrative appeal.

Additionally, administrative appeals may only be made prior to the appeal before a Tax Court and not after a claim has been filed before the Tax Court.

The taxpayer's initial situation cannot worsen as a consequence of the appeal.

Timing and procedure to make an administrative appeal

Generally, administrative appeals must be filed within one month of the date of notice of an appealable act, or following effective administrative silence.

In the case of periodically accruing debts and collective notification, the time to file an appeal begins from the date following the end of the voluntary payment period.

The general rule for calculating filing dates is by the same ordinal date in the next corresponding month. For example, if a notice is dated 12 December, the appeal must be filed between 13 December and 12 January. If the due date is a Saturday, Sunday or a public holiday in the domicile of the taxpayer, the filing date is the next business day.

The administrative appeal must be filed with the body that issues the administrative act. Electronic filing is mandatory for entities.

Effects of filing an appeal

The filing of an administrative appeal will:

  • toll the term for filing an appeal before a tax court until the date the appeal is resolved or dismissed due to administrative silence;
  • oblige the administration to resolve the appeal; and
  • toll the statute of limitations.

Contents of the administrative appeal

The administrative appeal must be in writing, addressed to the tax authority that issued the contested act and contain, inter alia, the factual and legal basis for appeal accompanied by supporting evidence.

Suspension of the execution of the act or assessment

The filing of the administrative appeal does not result in the automatic suspension of the tax assessment, unless it is guaranteed. The amount to guarantee is the total tax due, interest accrued, and any surcharge required at the time. Generally, the guarantee takes the form of a:

  • deposit of money or public securities;
  • guarantee or bond from a credit institution or a mutual guarantee company or guarantee insurance certificate; and/or
  • personal or joint and several guarantee of other taxpayers of recognised solvency.

Penalties will automatically be suspended and do not need to be guaranteed. The tax assessment may be suspended without the need to provide a guarantee when it is the likely result of an arithmetical or factual error.

Claim Before a Tax Court (Tribunal Económico-Administrativo)

Appeals before a tax court are administrative (as explained above) for the purpose of examining the legality of administrative acts. Such appeal is compulsory before appealing to the courts of law (jurisdicción contencioso-administrativa).

The different types of tax courts are:

  • the Central Tax Court (Tribunal Económico-Administrativo);
  • the Regional and Local Tax Courts (Tribunales Económico-Administrativos Regionales y Locales); and
  • the Special Doctrine Unification Division (Sala Especial de Unificación de Doctrina).

The following types of claims are heard at the level of the Spanish Central Tax Court (Tribunal Económico-Administrativo Central):

  • appeals of administrative acts issued by the Ministry of Economy and Finance, the AEAT, or the higher bodies of the tax administration of the Autonomous Communities;
  • appeals of administrative acts issued by peripheral bodies of the AEAT or bodies of the autonomous communities not included in the previous paragraph, as well as appeals of individuals electing to file such claim directly before the Central Tax Court;
  • appeals of resolutions from the Regional and Local Tax Courts;
  • extraordinary review and appeals for the unification of criteria; and
  • claims to rectify errors made by its own resolutions.

The Regional and Local Tax Courts (Tribunales económico-administrativos Regionales y Locales) hear:

  • appeals of administrative acts issued by the peripheral bodies of the AEAT, or lower bodies of the autonomous communities when the amount of the claim is equal to or less than EUR150,000.
  • appeals of administrative acts issued by the bodies mentioned in paragraph 1, when the amount of the claim exceeds EUR150,000 (or EUR1,800,000 in the case of claims against tax bases or valuations); and
  • appeals to rectify errors in its own resolutions.

Timing and procedure to make an appeal

A claim before a tax court must be filed within one month, counted from the day following the notice of the appealable act or the date of administrative silence.

The general rule of calculating filing dates is by the same ordinal date in the next corresponding month, as described above for administrative appeals.

Claims before the tax court must be filed electronically when the taxpayer is obliged to receive communications and notifications electronically (ie, corporate taxpayers). The claim will be remitted with the tax file from the government body where it was filed to the appropriate tax court within one month.

There are two types of procedures to file an appeal before a tax court: ordinary and abbreviated, depending on the amount of the claim.

Under the ordinary procedure, the claimant files an appeal with a written document requesting the interposition of the claim identifying the claimant, describing the contested action and listing the claimant's domicile for correspondence. The claimant may attach the allegations on which it bases its rights, but this is not compulsory.

The tax court will confirm its competence and will grant a one-month period for the parties to submit the allegations and appropriate evidence.

The abbreviated procedure must, contrary to the ordinary procedure, include the allegations on which the claim is based in the first interposition of the claim.

Suspension of the execution of the contested act under appeal

The filing of a claim before a tax court will only result in the automatic suspension of the execution of the assessment if the amount is guaranteed, as described above for administrative appeals.

A suspension of a tax collection agreed during the tax court procedure will be maintained through the tax courts and extended during the courts of law proceedings if requested again. In such a case, it is necessary to extend the scope of the guarantee to the court of law.

The tax administration will reimburse the cost and interest of the guarantee if the assessment is declared totally or partially null and void by judgment or final administrative decision.

The deadline for the tax authorities to resolve an administrative claim is one month counted from the day following the filing of the appeal.

However, the lack of an express resolution within this timeframe does not exempt the tax administration from its obligation to resolve the appeal. The taxpayer can wait for the express resolution and then file the corresponding appeal or file an appeal after the one-month period, assuming a tacit negative decision.

Following the resolution of the administrative appeal, express or tacit, the same administrative appeal cannot be used again; only a claim before a tax court can be filed.

For claims before tax courts, the tax court must resolve such claims within one year from the filing of the claim. Once this period has elapsed, the taxpayer may presume that the claim has been dismissed for the purpose of filing the appropriate appeal.

The tax court must expressly resolve each appeal. Thus, the appeal of a tax court resolution can be postponed until there is an express resolution. The final resolution of the tax court exhausts the administrative procedures, thus allowing appeal to the courts of law.

In accordance with the Spanish tax regulations, once all administrative procedures are exhausted, taxpayers may appeal tax disputes before the courts of law.

The laws governing judicial tax litigation establish the proper forum for matters before the following courts of law:

  • the Spanish High Court (Sala de lo Contencioso-administrativo de la Audiencia Nacional);
  • the Regional Superior Courts of Justice (Sala de lo Contencioso-administrativo de los Tribunales Superiores de Justicia); and
  • the Court for Administrative Litigation (Juzgados de lo Contencioso-Administrativo).

General Issues

In general, appeals to the Spanish courts of law are initiated by means of a written petition.

Such appeals must be filed within two months following the publication of the challenged resolution or notification of the action which ends the administrative procedure. If the action is not express, but presumed, the appeal must be filed within six months of the date on which the resolution can be presumed to have been rejected.

A judicial tax litigation process (contencioso-administrativo) can follow two procedures:

  • the ordinary procedure; and
  • the abbreviated procedure, limited to matters valued below EUR30,000 and certain matters related to administrative staff.

Ordinary Procedure

Below is a detailed outline of the standard ordinary procedure.

  • Within the aforementioned filing period, an application must be filed presenting the contested resolution accompanied by the corresponding documents and a request for a copy of the administrative file.
  • Receipt of appeal, or certificate that the appeal is admitted.
  • Submission of a written brief within 20 days. The brief must include the facts and legal basis with all the evidence available. A request to complete the administrative file may also be claimed and, if necessary, a request to review the evidence in a public hearing and a transmission of conclusions (the court has to consent if this is requested).
  • The respondent will provide a reply brief within 20 days and may raise grounds for dismissal for lack of competence within five days.
  • When the brief and the reply have been filed, a hearing may be held (generally, there is no hearing if the process is based on documentary evidence) and the parties will present their statements of conclusions.
  • Once the proceeding is declared closed, the court has ten days to issue a judgment.

In practice, the ten-day term to issue the judgment is seldom respected.

Abbreviated Procedure

Below is a detailed outline of the standard abbreviated procedures.

  • Initiation of the appeal by an application presenting the contested action with the facts and legal grounds and accompanied by the corresponding evidence.
  • Admission to processing the claim by the court with a copy provided to the respondent, requiring the administrative file, and subpoena of the parties for hearing.
  • Once the court receives the administrative file, it will provide copies to both parties.
  • At the hearing, the claimant and respondent will present their allegations and a judgment will be made within ten days of the hearing.

Evidence must be provided at the time of filing of the claim, which in the case of the abbreviated procedure, happens at the same moment of filing the application. However, it is customary that the administrative record contains the evidence.

Note that for evidentiary rules, the civil jurisdiction regulations are supplementary.

In general, the burden of proof falls on the claimant. However, the tax administration has the obligation to prove and motivate its actions. In terms of a tax crime, the tax administration must prove the existence of a criminal offence, since the presumption of innocence applies to the taxpayer.

There is no possibility for timing the provision of evidence strategically, since evident must be provided at the required times as indicated above.

Agreement is uncommon for tax disputes.

If the taxpayer communicates to the corresponding tax administration the filing of the appeal with request for a suspension of the execution of the debt (with the necessary guarantees), such suspension will continue until the court makes a judgment.

Judgments issued by the Spanish Supreme Court (Tribunal Supremo) constitute binding jurisprudence, with which all administrative and judicial bodies are obliged to comply. Additionally, judgments issued by the Regional Superior Courts (Tribunales Superiores de Justicia) are binding on lower courts.

Resolutions from the Spanish Central Tax Court are binding for tax authorities, including the Spanish General Directorate for Taxes.

Internationally, the case law of the European Court of Justice is also binding for the Spanish Administration and for Spanish courts, including the Spanish Supreme Court.

Appeals can be raised against judicial resolutions (providencias or autos) and judgments.

Different types of appeals are classified according to the following criteria.

  • Based on the reasons for appeal and the competence of the body that has to resolve it:
    1. ordinary appeals can be filed without restrictions on the motivation;
    2. extraordinary appeals are only available for restricted causes of action as determined by the law and for which the competence of the deciding court are limited; and
    3. exceptional appeals can only follow final judgments.
  • Based on the appeal's effects, distinguishing between appeals with a single effect or appeals with double effects. In the first case, the appeal will not affect the suspension of the execution of the resolution appealed, meaning the resolution appealed can be executed while the resolution of the appeal is pending.

The recurso de reposición is a single effect appeal whereas the appeal to the next-higher court (recurso de apelación frente a sentencias) and the appeal before the Spanish Supreme Court (recurso de casación) have double effects.

  • Based on the resolution against which they are filed:
    1. appeals against orders providencias/autos.
    2. appeals against judgments and appeals against the court clerk resolutions.

Appeals for Reversal (Recurso de Reposición) Against Orders (Providencias/Autos)

The appeals for reversal may be lodged against orders but never against judgments.

The appeals for reversal are heard by the same court that issued the resolution appealed. The appeal must be filed within five business days of the date of notification of the resolution appealed.

This appeal does not suspend the appealed decisions, unless the court decides otherwise.

The court will circulate the appeal to the opposing parties for an opportunity to challenge it within three business days. Once this time elapses, the court must resolve the appeal by means of an order (auto), within a period of three days.

Appeal Before the Spanish Supreme Court (Recurso de Casación)

Appeals before the Spanish Supreme Court can only be filed before the Administrative Division of the Spanish Supreme Court. It is possible to lodge the appeal against certain judgments and, exceptionally, against certain orders (autos).

Actionable orders (autos)

Only the orders issued by the Administrative Division of the Spanish High Court and the Administrative Division of the Regional Superior Courts of Justice the can be appealed.

Such appealable orders are those that deny the appeal from courts of law (recurso contencioso-administrativo), make impossible the continuation of appeal, finalise orders ending separate proceedings for precautionary measures and have fallen in execution of sentence.

To lodge an appeal before the Spanish Supreme Court, it is compulsory to first file the appeal for reversal (recurso de reposición) against the order of the court.

This appeal will be processed in the same way as an appeal of judgments before the Spanish Supreme Court, described below.

Actionable judgments

This is an extraordinary appeal and essentially formalistic, with the main purpose of achieving a correct and uniform application of the law and consistency of judicial resolutions.

This appeal does not resolve the factual controversy between the parties, but rather the underlying question of law.

The appeal may be brought by parties to the action in which the judgment is made or by those who could or should have been a party to the process, in certain cases.

The following judgments can be appealed:

  • judgments issued by the juzgados or juzgados centrales de lo contencioso-administrativo, containing doctrine that is considered seriously harmful and susceptible of extended effects; and
  • judgments issued by the Administrative Division of the Spanish High Court and the Administrative Divisions of the Regional Superior Court of Justice.

The appeal must meet certain strict guidelines established by the Spanish Supreme Court.

The Supreme Court may decide that there is objective interest in judicial review where, inter alia, the judgment being challenged:

  • interprets Spanish or European Union law in contradiction of other courts;
  • construes a doctrine which could be seriously damaging to general interests;
  • affects many situations; and/or
  • settles a constitutional debate.

In addition, an objective interest in judicial review will be assumed:

  • where the ruling challenged applies rules on which there is no jurisprudence;
  • where the ruling deviates from existing jurisprudence to be erroneous; and/or
  • where the judgment declares void a general legal provision.

Below is a brief summary of the procedural steps for such appeals:

  • Preparation – the cassation appeal is prepared before the court within 30 days of the day following the notification of the decision being appealed.

The writ of preparation of the appeal before the Spanish Supreme Court (recurso de casación) must specify the specific regulations or jurisprudence intended to be addressed and comply with the requirements set forth in the resolution of the Supreme Court dated 20 April 2016.

The court, by means of an order (auto), will summon the parties for their appearance within the 30-day period before the Administrative Division of the Supreme Court and circulate the original filings and the administrative file.

  • Admission procedure – the admission of the appeal is decided by a specific section of the Administrative Division of the Spanish Supreme Court.
  • Provisional execution of the judgment appealed before the Supreme Court – the appeal before the Supreme Court does not prevent the provisional execution of the appealed judgment, except if irreversible damage may be caused.
  • Interposition and opposition – once the appeal is admitted, the Court Clerk of the Admission Section of the Administrative Division of the Spanish Supreme Court issues an order to refer the proceedings to the section of that Division for its processing and decision.

That order will inform the appellant of a 30-day period to lodge the appeal for judicial review. The filing document must be submitted to the secretariat of the competent section for processing and decision.

After the 30-day period, the competent section for the decision of the appeal, ex officio or at the request of any of the parties, must agree to hold a public hearing.

  • Judgment – the competent section, or the plenary session of the Division, must issue a ruling within ten days of the end of the deliberation for voting and ruling.

See 5.2 Stages in the Tax Appeal Procedure, above, regarding the appeal for reversal or the appeal before the Spanish Supreme Court.

In Spain there are no ADR mechanisms before going to court. However, taxpayers wanting to appeal may reach an agreement with the opposing party.

Within the European Union framework, ADR mechanisms have been implemented through Council Directive (EU) 2017/1852, 10 October 2017 in connection with the adjustments of profits of associated enterprises (90/436/EEC).

This Council Directive set up a binding system by which an Advisory Commission resolves disputes after a Mutual Agreement Procedure (MAP) between two countries fails to resolve a double taxation dispute.

Taxpayers can request binding advance information from the Spanish tax authorities by means of submitting a binding request. The General Directorate for Taxes is in charge of granting such rulings.

The Spanish tax authorities have to follow the same approach given by the rulings whenever the same facts and circumstances apply for another taxpayer and to the extent there has not been a change in the law applicable to the particular case.

Judicial bodies are not bound by the rulings issued by the General Directorate of Taxes, but generally tend to follow them.

The General Directorate of Taxes has six months to respond to the request. However, lack of response within this deadline does not imply the acceptance by the tax authorities of the content of the request.

Tax infringements are actions or omissions classified as such in the tax regulations, provided that they are intentional or the taxpayer is culpable for any degree of negligence.

There are therefore two elements of a tax infringement:

  • the objective element or act or omission in the tax regulations; and
  • the subjective element or culpability.

The tax regulations classify tax infringements as minor, serious or very serious. The main tax infringements are:

  • not paying the tax debt resulting from a self-assessment (minor, serious or very serious);
  • incomplete submission of statements or documents (minor, serious or very serious);
  • improper refunds (minor, serious or very serious);
  • improper request for refunds, benefits or incentives (serious);
  • incorrect allocation of tax bases, income or results by look-through companies (serious);
  • non-submission of self-assessments or declarations without causing economic damage to the Spanish Treasury (minor); and
  • incorrect filing of self-assessments or declarations causing economic damage (serious).

Penalties corresponding to a specific infringement may be increased in certain cases.

In the event that certain conduct falls within the scope of a tax offence because it consists of conduct (action or omission) resulting in fraud exceeding EUR120,000, the criminal procedure will have priority and the competent criminal jurisdiction will determine if a tax crime occurred.

When the Spanish Tax Authorities assess potential evidence of a crime against the Public Treasury, the process for settlement and collection of the tax debt shall continue in accordance with the general rules and files will be remitted to the Public Prosecutor.

Except in certain specific cases stated by law, it is mandatory to make a tax assessment subject to verification, separating different assessments for items related to a possible crime against the Treasury from those that are not considered a crime.

In the event that certain conduct is criminal and also a case of tax infringement, the criminal process will have priority and the Spanish Tax Authorities will not interfere.

The initiation of a criminal proceeding for a crime against the Treasury will take place in the event that the Spanish Tax Authorities detect evidence that the conduct qualifies as tax crime.

If a criminal judgment is issued after a criminal process, it shall be binding for the administration, which may not impose new penalties for the same acts according to the non bis in idem principle.

If the taxpayer is acquitted, the administration is bound by the judgment and no administrative sanctions can be imposed.

If the judicial body acquits the accused because the conduct does not meet all of the elements of a crime, the Spanish tax authorities may continue and initiate, when appropriate, a new infringement proceeding.

Administrative Processes

The administrative infringement proceeding may follow the ordinary procedure or the abbreviated procedure.

The abbreviated procedure takes place when all elements justifying imposition of a penalty are present, which will be added to the notice by which the proceeding begins. Unlike in the ordinary procedure, in the abbreviated procedure the instruction stage is omitted, going directly to the resolution proposal phase.

In the ordinary infringement procedure, the following stages can be distinguished.

  • Beginning – the procedure always starts ex officio, through notification to the taxpayer by the competent body. The maximum timeframe is three months from the notification of the assessment or ending of a previous proceeding.
  • Investigation – all necessary actions will be ex officio. Evidence, statements and reports necessary to obtain a decision shall be included in the file the Spanish Tax Authorities use to build the case.

After the investigative actions, a tentative decision will itemise the facts, infringements, motivation and calculation of the penalties imposed to the taxpayer.

  • Decision – the competent office will rule on the imposition of penalties. 

Criminal Cases

Once the Spanish Tax Authorities have found evidence that an offence may be considered a felony against the Public Treasury, the case will be referred to the Public Prosecution.

In abbreviated criminal proceedings for the investigation, prosecution and judgment of criminal offences punishable by a prison sentence of up to nine years, there are three stages.

  • Instruction stage – if there is evidence of the existence of a possible crime, the investigation and identification of the presumed actors, as well as their prosecution, are under the competence of the instruction court determined at a regional level. In order to clarify the facts that gave rise to an alleged crime, the examining magistrate will instigate a procedure called 'preliminary diligences'.
  • Intermediate stage – initiated by the investigating judge to determine if there are sufficient facts. At this stage, the Public Prosecutor's Office proceeds to formulate their indictment or provisional conclusions indicating the name of the accused, the facts, the crime committed and the evidence that will be presented in court to support the accusation.
  • Transfer stage – in the event that the judge approves proceeding, the file will be transferred to the competent jurisdictional body for that purpose, or to the criminal court (Juzgado de lo Penal) for prison sentences of up to five years or to the provincial court (Audiencia Provincial) for cases of serious crimes punishable by more than five years' imprisonment and not exceeding nine years.

Penalties may be reduced as follows.

  • 30% relief in the case of acknowledgement.
  • 50% relief in the case of agreement of the settlement. This relief is only applicable for penalties derived from an audit proceeding when both parties reached an agreement.
  • An additional 25% reduction in the case of agreement of the settlement and penalties and its payment. This reduction is applicable to penalties imposed for any infringement, but is incompatible with the above 50% reduction.

The taxpayer may avoid trial for a tax crime and possible conviction if the taxpayer proceeds to regularise their tax situation, acknowledging the facts, and pays the tax debt before the Spanish Tax Authorities start any procedure.

For tax offences with a prison sentence up to five years, in the case of a first judgment sentenced by the appropriate criminal court, the appeal may be filed before the provincial court.

For tax offences with a prison sentence of more than five years without exceeding nine years, the judgment given first by the provincial court is appealable to the Civil and Criminal Chamber of the Regional High Court of Justice.

Spanish tax regulations include a General Anti-avoidance Rule (GAAR) which allows the Spanish tax authorities to audit certain artificial transactions made to avoid paying the appropriate taxes.

The Spanish tax authorities may apply this clause when the taxpayer avoids or reduces the payment of the tax owed and two requirements are met: the actions or measures taken to achieve tax avoidance are wholly artificial, and have as their sole purpose obtaining tax savings.

If the Spanish tax authorities apply the GAAR, the taxpayer must pay taxes according to what was supposed to be paid without the use of said artificial mechanisms plus interest for late payment. Penalties may be imposed for wilful misconduct.

The Supreme Court has ruled that tax fraud (fraud that GAAR tends to avoid) may be punished as a crime against the Public Treasury. However, the Constitutional Court has clarified that this fraud of law cannot be considered a crime. 

The number of cases in which taxpayers decide to solve a double taxation situation by means of requesting a MAP has increased.

MAPs are a dispute-solving mechanism between two tax administrations when the action taken by one or both gives rise, or may give rise, to taxation not in accordance with the Double Taxation Agreement (DTA) signed between two countries, or may give rise to double taxation.

Within the international framework of the MAPs included in the different DTAs Spain has signed, some are regulated under the relevant article of each DTA signed by Spain and a third country and others are regulated under the European Arbitration Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises.

The MAP Regulation is the main legal framework for both types of MAPs (those regulated under a regular DTA and those following the provisions of the Arbitration Convention.

MAPs are initiated upon the will of a resident taxpayer; however, their treatment and solution concern exclusively to the competent authorities of the Contracting States. The competent authority is usually the General Directorate for Taxes (Dirección General de Tributos) except for those where the Arbitration Convention is applicable which are under the umbrella of the Spanish Tax Agency (Agencia Tributaria).

Although the 2003 revision to the Commentary on Article 1 of the OECD Model Convention introduced certain provisions in order to avoid conflicts between DTA and domestic clauses, it is unclear whether the application of domestic GAAR (General Anti-avoidance Rules) instead of the provisions of the DTA could breach the pacta sunt servanda principle. To avoid issues of this kind, Spain has included in some of the recently signed DTAs the application of domestic GAAR.

However, it might be challenging to accept the application of a domestic GAAR when a particular DTA does not mention the possibility of applying a domestic GAAR. Despite these doubts, the approach of the Spanish Tax Authorities and the Courts do not find controversy in the relationship between the domestic GAARs and the provisions of the DTA, with the application of domestic GAARs prevailing over DTA provisions.

There has been limited guidance in relation to the allocation of an item of income to a different taxpayer as a result of the application of a GAAR; however, the Spanish Courts tend to apply the sham transaction doctrine ignoring tax treaty issues.

The Spanish tax authorities may apply tax adjustments in those cases where the arm's length principle has been incorrectly applied, ie, given that the transfer pricing methodology has been incorrectly applied, no comparability adjustments have been performed, or the compensation of the intragroup transaction falls out of the 'market' range.

Taxpayers may request the application of international instruments to avoid double taxation, such as the MAP or international arbitration.

Spanish legislation offers different mechanisms to prevent and/or resolve transfer pricing disputes: enhancement engagement programmes, advance pricing agreements (unilateral, bilateral, multilateral) and mutual agreement procedures.

Spanish local transfer pricing rules establish the possibility for taxpayers to 'negotiate' with Tax Authorities their future transfer pricing policies' APA.

  • The APA can be agreed for the next four fiscal years (FYs) of intragroup transactions. In addition, it can be used to confirm policies applied during the prior four years.
  • APA negotiations in Spain last for six months and there are no fees to be paid to tax authorities.
  • The company may file a preliminary request accompanied by a proposal that is consistent with the arm’s length principle and containing a description of the method and the analysis followed to determine the market value.
  • Final approval between taxpayers and the tax authorities has a six-month deadline.
  • After the APA agreement taxpayers need to file, apart from the corporate income tax return, a statement confirming the agreement terms.

There is increasing activity regarding transfer pricing. Tax audits challenge the deduction of expenses derived from some international intragroup transactions: tax auditors review whether the intra-group transactions are benefiting the Spanish receptors and whether the intra-group charges for such services are consistent with the arm’s length principle.

At an administrative level, there is no fee imposed on taxpayers for litigation purposes by the tax authorities. Most disputes are reviewed by the Spanish tax authorities and tax courts where taxpayers can file a claim without any cost, complying with the requirements for the admission of the claim. However, there may be sanctions imposed before litigation and administrative courts may request deposits or guarantees in order to suspend the execution of the assessment, as described previously.

Furthermore, an award of costs may be required if the tax courts find that the taxpayer has acted in bad faith or recklessly. However, when costs are imposed, these are quantifiable by applying 2% of the amount included in the claim, with a minimum of EUR150 for judgments made by single-judge courts, and EUR500 for judgments made by a courts with a bench of judges.

Concerning judicial courts, there are no fees for proceedings within the administrative jurisdiction for tax disputes.

When it comes to judicial review, the general rule is that judicial court costs are not imposed on the taxpayer if all pleas are accepted. However, when fees are imposed, these are limited to a part of the costs or a maximum amount.

Generally, indemnities after litigation for tax purposes are never imposed. However, if the ruling is in a taxpayer’s favour, interest accrued since the day the amount was due to the taxpayer is imposed on the tax authorities retroactively.

As mentioned in 6 Alternative Dispute Resolution (ADR) Mechanisms, above, Spain does not recognise these alternative methods for tax purposes.

ADR may be used in transfer pricing transactions between related parties, or conflicts between states regarding transaction issues, in order to reach a friendly settlement.

Statistics concerning the number of tax cases currently pending are approximate and the clearance rate from judicial courts cannot be used as reference.

Accordingly, considering tax courts in tax disputes as a first-instance court, in 2018, the number of administrative cases that were under dispute was above 200,000. The average number of cases which reached to the courts during the past five years was about 190,000. This data includes all claims filed to regional and national courts.

Focusing on the number of cases by the type of tax considered in the 2017 calendar year, the most common tax under litigation is Personal Income Tax with 57,121 cases, followed by Stamp Duty Tax with 32,461 cases and Value Added Tax with 21,178 cases.

Additionally, Inheritance and Gift Tax had 11,863 cases, followed by Corporate Income Tax, which had 9,404 cases. It is necessary to mention as well that the tax authorities’ proceedings are also much litigated, with 32,934 cases.

In order to determine statistics relating to success in litigation, data from the Spanish tax agencies and central tax courts shows that 45.31% of appeals made by taxpayers were ruled in their favour, against 44.76% for the Spanish tax agencies.

Taxpayers have the most success litigating Inheritance and Gift Tax, with a success rate of almost 70%, followed by Stamp Duty Tax with 63.83%.

Conversely, for the Spanish tax authorities, the most successfully litigated taxes are Special Taxes – including tobacco, alcohol or excise taxes – with a rate of 75.27%, followed by Corporate Income Tax with a 47.98% rate.

In order to minimise the risk of tax controversies, Spanish taxpayers should promptly and accurately fulfil their tax obligations. The use of technology has enhanced the information sharing with the tax authorities, especially for corporates.

As explained previously, the adoption of the Code of Good Tax Practices ensures the best corporate governance practices, tax transparency and tax practice co-operation, and collaboration with the tax authorities in the detection of fraud. Following these practices will reduce the risk of litigation, although there are no written rules in this regard.

Spanish tax audits are long and time consuming. Every effort should be made to provide the tax authorities with all information requested. Good internal organisation of the information is critical to efficiently liaise with the tax auditors and project an image of good governance. The supply of evidence to the tax auditors can form part of the administrative file which is extremely important, as the supply of evidence in the next phases is more difficult.

Many tax audits end up in a tax litigation process. Although administrative appeals are available, the direct appeal before the Spanish tax courts is normally the path followed by taxpayers.

Given that the Spanish tax courts are highly specialised in taxation, tax controversies based on complex tax technicalities are more likely understood by tax courts. Consequently, taxpayers should focus on that phase in order to succeed with their claims. Preliminary rulings from the European Court of Justice can be claimed before a Spanish tax court, although many are not granted.

Other controversies require judicial litigation. The strategy of that phase relies on the assessment of the evidence and requires a technical motivation based on Spanish or European case law to convince the court.

Accessing the Spanish Supreme Court is extremely difficult as the requirements for the court to accept a case are strict. Litigation before the Spanish Supreme Court only refers to the legal basis of the case, never the facts.

Andersen Tax & Legal

Calle Velázquez 108-110
28006 Madrid
España

+34 917 813 300

+34 915 755 877

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Law and Practice in Spain

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Andersen Tax & Legal in Spain has offices in Madrid, Barcelona, Valencia and Seville and a presence in Bilbao through a collaborating firm. With more than 250 professionals in Spain, Andersen Global adds a further 4,000 professionals and 140 offices in our worldwide network. The tax team in Spain is comprised of 50 professionals who assist clients in evaluating and mitigating the tax risks of projected transactions, representing clients in all tax controversy matters, including audits and appeals before competent tax authorities at trial and in litigation. Advising Spanish and foreign companies both nationally and internationally, the firm’s practitioners propose solutions tailor-made for clients’ day-to-day business as well as major restructuring transactions, due diligence, divestitures, commercial transactions, project financing and tax planning, among others.