Tax Controversy 2023

Last Updated May 18, 2023


Law and Practice


GTA VILLAMAGNA was founded by professionals of recognised standing, with over 30 years of experience in the civil service and private legal practice. The firm’s tax controversies team is formed by highly qualified former members of international law firms and national tax administrations. It enjoys a reputation as a handler of complex, sophisticated and highly demanding tax procedures and its team is recognised by clients and peers as one of the leading tax litigation departments in the Spanish market. Significantly smaller than all its major competitors, its senior qualified lawyers are actively involved in all of its services and offer personal attention. The firm has acted as legal counsel for major clients on some of the leading recent tax controversies in Spain and collaborates with leading law firms in many jurisdictions.

As a general rule, tax controversies arise as a result of tax assessments derived from an administrative procedure initiated by the Spanish Tax Authorities (STA), such as those addressed to tax data verification, tax restricted checking or tax inspection (with either a general or partial scope).

However, they can also be initiated by the taxpayer in the event that they challenge their own self-assessed tax return (request for the rectification of a self-assessed tax return and refund of undue tax paid). Furthermore, taxpayers are also allowed to challenge withholdings and/or output VAT by lodging a claim against these before the STA.

Recently, this latter approach has become very common as a preliminary step for taxpayers seeking to recover amounts unduly paid to tax authorities, such as payments made for municipal capital gains tax.

The taxes that give rise to the most tax controversies are corporate income tax (CIT), personal income tax (PIT) and value added tax (VAT).

However, during the last two years there has been a significant amount of litigation in the area of municipal capital gains, as well as due to the tax administration’s verification of values.

Corporate Income Tax

With regard to CIT, the most common controversial matters/issues are:

  • the application of tax losses and deductions carried forward, which are open to amendment for a special ten-year period;
  • the application of the sham transactions doctrine by the STA under the tax perspective;
  • the use of what are known as “brass plate companies” and/or “offshore companies”;
  • the assessment of the existence of sound business reasons to carry out restructuring operations upon which the tax neutrality regime depends;
  • transfer pricing issues in related-party transactions;
  • deducibility for tax purposes of expenses linked to partners and board members’ remuneration;
  • the “real residence” of foreign companies; and
  • the application of tax transparency rules.

Personal Income Tax

With respect to PIT, the STA are focusing their attention on individuals who render professional services through their own companies and the benefits from professional activities remain within the company rather than being distributed to the individual. This practice could result in underpayment of total tax due, not only due to the difference in CIT/PIT tax rates, but also because such entities often serve as vehicles for the acquisition of personal assets of their partners.

In addition, the STA are increasingly focusing their attention on tax residence issues and their subsequent implications for direct taxes and existing formal obligations. In recent years, many high net worth individuals have moved to Spain, or have simply acquired properties or assets in the country, without being aware of the conditions under which an individual may become a Spanish tax resident and without having analysed the tax implications.

The influx in recent years of high net worth individuals to Spain, particularly Madrid, coupled with changes in tax law in late 2022, has significantly increased the likelihood of more tax inspections and litigation. These changes include the approval of a new tax (ISGF) to supplement the wealth tax in regions where it had been “fully subsidised”, namely Madrid and Andalusia, and the expansion of the Beckham Law’s scope to encompass new assumptions and investments. Consequently, taxes such as personal income tax, wealth tax, and inheritance tax are likely to be affected.

During 2021 and early 2022, the STA applied tax penalties associated with Form 720 to  Spanish tax residents who failed to declare all their assets held abroad. This was despite the fact that the European Commission had challenged the arrangement and the ensuing consequences and penalties. One particularly onerous consequence was the deeming of any unjustified increase in equity as being entirely allocated to the oldest tax period for which the statute of limitations had not expired. In addition, a tax penalty of 150% could be imposed (until 2022).

It must be highlighted that the Court of Justice of the European Union concluded in 2022 that the penalties for non-compliance with the obligation to declare assets through Form 720 were disproportionate and unlawful. As was the obligation on the taxpayer to prove the statute of limitations. This landmark ruling prompted a change in regulations in 2022, including the repealing of paragraph 2 of Article 39 of the Personal Income Tax Law and the former specific penalty regime.

Another contentious issue likely to provoke disputes with the STA in the near future is the taxation of carried interest as a form of remuneration for venture capital investments. Although the Spanish tax regulations have been modified to clarify its taxation, the STA typically categorise this remuneration as capital income rather than income derived from the taxpayers’ efforts to run and develop the business.

Value Added Tax

Regarding VAT, the STA place special emphasis on:

  • the tax regime on real estate transactions;
  • the VAT status of holding companies and deductibility of input VAT borne; and
  • pro-rata deduction of companies performing limited exempt transactions (ie, financial and insurance companies or companies belonging to the healthcare and education sectors).

Some recommended guidelines in order to mitigate potential tax controversies include the following:

  • the management of tax compliance risks through the implementation of structured processes aimed at the systematic identification, assessment, ranking, and treatment of those risks (eg, failure to register, or to properly report tax liabilities);
  • asking for tax and legal advice on the envisaged transactions in advance, in order to be aware of their tax and legal status before the STA and to avoid the execution of projected operations/transactions in any way that may lead to a tax controversy;
  • preparing and obtaining any supporting evidence through which the taxpayers could prove, within the tax audit procedure, the existence of (or the business reasons for) said business or a specific legal operation/transaction;
  • formulating, if deemed necessary by counsel, binding consultations to the General Directorate of Taxes (GDT) when no clear interpretative criterion exists about the transactions/operations that are intended to be carried out; this binding consultation is recommended to be prepared if a taxpayer does not want to assume any risk; and
  • being aware of the STA’s position on a tax issue and of the previous jurisprudence and pending litigation with respect to relevant transactions/operations or any other issues that may give rise to tax controversies.

The STA have consistently shown a high level of commitment to the implementation of the measures proposed in the OECD’s Base Erosion and Profit Shifting (BEPS) Project. Most of these measures have already been implemented, including EU Tax disclosure rules (DAC 6) and the Anti-Tax Avoidance Directive (ATAD) anti-hybrid legislation.

Additionally, further developments are currently being discussed in the Spanish Parliament to implement measures contained in Directive 2016/1164 as amended by Directive 2017/952 (ATAD I and ATAD II).

The hybrid asymmetry regulation has already been transposed.

It should be noted that Spain has approved the regulation of the “Google tax” in order to correct certain problematic aspects. However, as Spain has approved this tax unilaterally, there may be conflicts when it comes to applying the conventions approved to avoid double taxation, among many other issues.

Spain was one of the signatories of the OECD multilateral convention to implement tax treaty-related measures to prevent BEPS (MLI), signed on 7 June 2017. The definitive MLI position of Spain is still to be approved by the Spanish parliament.

Spain is in the process of transposing the DAC 7 Directive, which establishes a new exchange of tax information obligation between EU countries on digital operators together with the so-called EU-level “joint inspections”. Spain is likely to react promptly to the proposal on the new tax transparency law – DAC 8 – which requires all service providers facilitating crypto-asset transactions for EU customers to report crypto transactions of EU clients.

The National Bureau of International Tax Affairs

The National Bureau of International Tax Affairs was created in 2013 to manage, plan and co-ordinate international tax affairs; in particular, certain risk areas directly connected with BEPS. This has led to increased attention from the STA that will certainly result in increased tax controversies in the following areas:

  • transactions carried out by Spanish tax residents using hybrid mismatch or other aggressive tax planning arrangements;
  • leveraged acquisition of participation in a company with the main aim of generating tax-deductible expenses;
  • transactions carried out with low-tax countries (especially with those qualified as tax havens) and by persons or entities that change their residence with the aim of avoiding the payment of taxes;
  • payments and complex transactions to which model provisions to prevent treaty abuse, including through treaty shopping, may be applicable; special attention will be paid to dividends and royalties paid through “conduit companies” set up in countries with favourable tax treaties to channel investments and obtain reduced rates of taxation;
  • permanent establishments of non-resident entities that are currently being taxed as if they were not established in Spain for tax purposes, especially in the cases of multinational enterprises; and
  • effectiveness of information exchange and co-operation between tax administrations.

According to tax regulations, the taxpayer will be entitled to file either an internal administrative appeal (recurso de reposición) or an economic-administrative claim against additional tax assessments or against the resolution of the appeal. If such appeals are totally or partially rejected by the administrative authorities, taxpayers may challenge/appeal those resolutions before the judicial courts.

The appeal of the tax assessment before an administrative court does not prevent its execution (payment of tax appealed), as an assessment is enforceable since it is issued by the STA. However, the taxpayer may choose to pay the appealed tax due or suspend its execution; bearing in mind that the payment choice does not determine the waiver of any right in the appeal or claim filed against them. 

If the taxpayer decides to suspend the mentioned tax debt, whether the additional tax assessment comes from a tax settlement or a tax penalty must be determined. When deriving from a tax penalty, the filing of an appeal determines the automatic suspension of its execution in administrative proceedings, without a need to provide any further guarantee. However, the suspension is not automatic when the appeal is filed before a judicial court once the economic procedure is finished.

When deriving from a tax assessment, however, the filing of an appeal does not determine the automatic suspension of the tax debt execution in administrative proceedings. Because cases in which the suspension is made without the granting of a guarantee are less common, taxpayers should grant the guarantee if they want to suspend the debt’s execution. Thus, if they decide not to pay the tax due or not to apply for its suspension, the STA may initiate an enforcement procedure for the collection of the corresponding amount, which is completely independent of the appeal or claim filed.

The STA’s main purpose is to monitor proper compliance with their tax obligations of taxpayers and to combat conduct that they consider may give rise to tax sham, fraud and/or evasion. As a consequence, because of their possibly “fraudulent” nature (under the scope of the STA), these are some actions or circumstances that may make a tax inspection or verification more likely. These include:

  • the existence of tax losses to be offset and deductions from the tax quota pending application;
  • the use of companies to allocate the personal costs of their partners;
  • the use of companies known as “brass plate companies” or “offshore companies” which, in fact, do not carry out any economic activity from a Spanish law perspective;
  • the presence of high financial expenses in relation to operating profits;
  • the performance of business restructuring operations benefiting from tax deferral conditioned on sound economic reasons;
  • the elimination of double taxation (either by the way of exemption or deduction); and
  • tax residence issues, both for individuals and companies.

Regarding high net worth individuals, their tax residence and the applicable special tax regimes (such as those that apply to impatriates or in the near future those related to digital nomads) are relevant topics on which the STA are focusing their attention.

As a consequence of the entry into force of the ISGF at the end of 2022, which is a new tax that aims to complement the Wealth Tax in those autonomous communities in which the latter was subsidised, namely Madrid and Andalusia, during 2022 and 2023, it is very likely that inspections will be initiated to verify compliance with the tax obligation in these communities. These inspections will be carried out by state bodies rather than the autonomous communities themselves.

To fully understand these actions, it is essential to consider the structure of this new tax, its spurious purpose, the unusual processing it involvesand the problematic nature of the tax in relation to the existing wealth tax.

Likewise, the STA will check the amounts declared by taxpayers on their tax returns to determine whether they differ significantly from those declared in the business sector to which they belong.

Finally, it is important to note that very large companies, as well as those which operate in regulated sectors, and those ultra-high net worth individuals who are considered “major taxpayers” (grandes contribuyentes), are regularly subject to tax audit procedures.

The regulation of tax verification and inspection proceedings is set out in the General Tax Law (GTL) and in its implementing regulations.

A tax inspection procedure could be initiated within the four years provided by the statute of limitations to verify compliance with the tax obligation, as stated in Article 66 a) of the GTL. Article 68 of the GTL provides some actions or certain rules regarding the suspension of the statute of limitation which was affected due to the COVID-19 pandemic during the “state of emergency” declared in the year 2020. However, the states of emergency declared by the government were subsequently found to be illegal and unconstitutional by the Constitutional Court. This circumstance will, undoubtedly, have an impact on procedures that had already been initiated and were in the pipeline during the pandemic, or those that were initiated during the states of emergency, and in which the statute of limitations is one of the grounds for challenging the administrative acts issued. Currently (as of May 2023), there is no state of emergency in force.

Generally, the tax inspection procedure cannot last for more than 18 months. Nevertheless, under certain specific circumstances it may last up to 27 months. If the STA fail to comply with the above-mentioned maximum periods for tax inspection proceedings, the statute of limitations shall not be deemed to be interrupted. Nevertheless, the tax inspection procedure must continue and end, even after the deadlines have elapsed. However, if this happens, any action performed by the STA during the inspection proceedings will be understood as not having interrupted the statute of limitations.

In 2015, the GTL was reformed and Article 66 bis was added to it. In accordance with this Article, the STA are empowered to audit and consider legal operations/transactions concluded in tax periods whose statutes of limitations have expired and have or may have an impact on the tax period which is under tax inspection. However, this does not mean that the STA are empowered to request tax debts or penalties related to the time-barred periods, but rather to assess any additional tax adjustments arising in the tax period under tax verification as a consequence of those statutorily barred periods.

COIVD-19 State of Emergency

As already mentioned, both states of emergency have been declared unconstitutional and, therefore, illegal. Undoubtedly, this will have a very significant impact on the administrative acts raised by the STA. This argument will have to be invoked in the appropriate administrative or judicial appeals in which the mentioned acts are being challenged.

Article 151 of the GTL provides that tax inspections may be carried out, at the STA’s discretion, in any of the following places:

  • at the tax domicile of the taxpayer, or where a representative of the tax payer is domiciled or has an office;
  • the place where the taxable activities are carried out;
  • the place where there is at least partial proof of the taxable event or of the de facto assessment of the tax liability; or
  • at the STA offices, when those matters to be inspected could be examined there.

Notwithstanding the above, the examination of the legal documents of the taxpayer by the STA must be carried out at the domicile, premises, or office of the taxpayer, before the taxpayer themselves, or a person designated to such effect. However, as a matter of fact, the tax procedure is mainly processed in the STA’s offices.

During the tax proceedings, companies must communicate with the STA through electronic means and the STA online platforms. Individuals are not obliged to use such electronic means and platforms.

Effect of COVID-19 on Auditing Procedure

Due to the pandemic, the use of digital applications, such us Zoom, for the processing of inspection proceedings has become widespread. Notwithstanding the problems that it still raises, it has undoubtedly been possible to speed up the procedures and reduce costs for the taxpayer.

As a direct consequence of the foregoing, the tax audit procedure has been expedited and, as a result, there is a risk to the taxpayer’s rights, because these might be affected or even infringed until this new practice is duly regulated.

Key areas in a tax audit are:

  • tax residency;
  • partners/board members tax status and remuneration;
  • real ownership for tax purposes of company assets;
  • sham transactions;
  • tax deferral special tax regime (restructuring companies);
  • tax-deductible expenses;
  • temporary allocation of financial expenses;
  • tax-loss carry forwards;
  • related-party operations/transactions;
  • deductions/exemptions on operations/transactions which have been subject to double taxation;
  • real estate operations/transactions;
  • holding, foreign and offshore companies; and/or
  • the nature of operations/transactions carried out according to GAAR.

Information exchanges and tax verification procedures have increased. This is due to the fact that the STA have more resources at their disposal in order to obtain information and documentation from taxpayers.

There are not known to be any cases where tax authorities from different jurisdictions have jointly initiated tax procedures against the same taxpayer in their own jurisdictions. However, tax authorities from different countries are closely co-operating and sharing relevant information and documentation. The tax authorities from the USA (IRS), the UK (HMRC), Italy (AE) and Switzerland (ESTV) should be expressly mentioned in this respect.

However, despite the fact that the existence of tax audit procedures initiated jointly by different states is not the general rule, for collection procedures inside the EU the rule is the other way round. Thus, both tax dues and tax penalties imposed and not paid in Spain would be prosecuted and executed by the tax authorities where the taxpayer is located or residing.

The key strategic steps to take during a tax audit include:       

  • making a preliminary analysis of the controversial tax issues followed by a rigorous analysis of the request made by the STA;
  • providing documentary support at the appropriate procedural moment; and
  • having a deep knowledge of the applicable tax legislation and accountancy, together with a wide experience in tax litigation.

In general, the administrative procedure for appeals/claims in Spain, once a tax assessment or penalty has been notified by the STA, consists of two stages: an administrative phase and an economic-administrative phase (Tax Administrative Court).

The administrative phase is optional and is initiated through the appeal lodged before the same administrative body that issued the tax settlement or penalty (appeal for reversal). As it is optional, the taxpayer may instead submit an economic-administrative claim directly before the Tax Administrative Court without the need to first file an appeal for reversal.

The economic-administrative phase is mandatory. This phase begins with the lodging of the claim/appeal before a Tax Administrative Court – at first or single instance – (economic-administrative appeal). The economic-administrative appeal is thus the mandatory way to first challenge a tax assessment.

The appeal is submitted before the same tax administrative body that issued the tax settlement; depending on the amount of tax debt or tax penalty and/or its subject matter, it will then be processed, either during ordinary proceedings or through a summary/fast track procedure, before the Tax Administrative Court.

In terms of deadlines, the economic-administrative appeal must be filed within one month as of the date of notice of tax assessment or tax penalty, or upon a tacit negative decision (when the STA fails to issue a final resolution).

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

Once all the administrative stages of appeal have been exhausted, taxpayers may file an appeal before the judicial courts.

In addition to the ordinary administrative review procedures mentioned above, there are several special review proceedings that could be used in exceptional cases.

It is important to note that none of the administrative appeal proceedings before Tax Administrative Courts require the taxpayer’s representation by an attorney (legal representative) or lawyer.

The deadline for the appeal for reversal is one month from the day following the filing of this kind of appeal. The STA have a duty/obligation to resolve all claims/appeals. Nevertheless, if the STA have not issued their decision within a six-month period, the appellants may consider the claim/appeal dismissed (tacit negative administrative decision) and file an economic-administrative appeal before the Tax Administrative Court.

The deadline for an economic-administrative appeal/claim is one year, or six months in certain cases, such as appeals whose amount would be less than EUR6000, from the day following the filing of this kind of appeal.

Nevertheless, if the Tax Administrative Court has not issued a resolution in the course of one year, the appellants would be able to consider the claim/appeal dismissed (tacit negative administrative decision) and file a further appeal before the judicial court. Likewise, the Tax Administrative Court also has the duty to resolve the appeals.

The deadlines to issue a decision/resolution can be interrupted under certain circumstances, for example if the Tax Administrative Court makes a request to the appellant.

Notwithstanding the foregoing, for those cases in which the resolution is delayed by more than four years due to the Tax Administrative Court, the possibility of invoking the statute of limitations may be analysed.

Once all tax administrative proceedings are finished, taxpayers-claimants should lodge an appeal before the competent judicial court in order to initiate the contentious-administrative procedure. Normally, in such judicial procedures, appellants must first file the appeal showing their disagreement with the resolution raised by the tax authority or Tax Administrative Court and, subsequently, once it has been admitted, they should file the proper lawsuit containing the merits.

The Jurisdiction Act governing the procedure contains the rules assigning competence for review to different judicial courts, namely:

  • the contentious-administrative courts;
  • the high courts of justice;
  • the National Court; and
  • the Supreme Court.

Ordinary Procedure

The appeal must be filed within a non-extendable period of two months from the notification of the administrative resolution, which includes resolutions from the Tax Administrative Court. Once the appeal is admitted by the judicial body, the claimant is granted 20 working days to present its lawsuit, in which the legal merits and the evidence to support the claim have to be included/filed. Subsequently, a written summary with the conclusions could be granted. In this document both the plaintiff and the State Attorney should briefly argue on the respective legal merits of their cases and the evidence gathered. A court takes on average between two to three years to deliver its verdict.

Once the first instance judgment has been handed down, the possibility of a further appeal is subject to special rules. When there is no second instance procedure, the judgment may be appealed before the Supreme Court through the cassation appeal, provided that certain requirements are met, and solely on legal grounds. Therefore, in order to know whether or not it is possible to appeal a judgment in cassation before the Supreme Court, it is necessary to carefully analyse the judgment of the lower court. However, if the claim is dismissed due to evidence-related issues, a cassation appeal cannot be made to the Supreme Court.

In any procedure, the plaintiff may request that the judicial body submit a preliminary ruling request to the ECJ. However, with the sole exception of the Supreme Court, the decision to request such a ruling from the ECJ is exclusively at the discretion of the Spanish judicial body. However, the Supreme Court (because it is the court of final instance) is compelled to file this preliminary ruling unless it considers that there is no doubt about the tax controversy.

Abbreviated Procedure

This judicial procedure is very similar to the one outlined above. The main difference is that the notice of appeal must also include the facts and legal grounds against the contested administrative action and be accompanied by the relevant evidence.

Likewise, when the first instance judgment has been handed down, the possibility of a further appeal before the high Spanish judicial courts may be filed if, for example, the amount of the claim is EUR30,000 or more.

It is important to bear in mind that in litigation, particularly tax litigation, evidence from prior administrative proceedings is becoming increasingly important, including in cases where the goal is to prevent future litigation for clients. Therefore, it is recommended to have evidence supporting the taxpayer’s conduct at the time when advice is provided to the client. This evidence may need to be provided in future to substantiate the client’s case.

In judicial tax controversies, the evidence that is usually the most relevant includes the following:

  • documentary evidence;
  • witness evidence;
  • expert reports; and
  • the legalisation of signatures and the apostille of the Hague, if certain foreign documents are needed to be filed as evidence in a national procedure.

Any evidence on which the claim is based must be proposed and provided at the time of filing the lawsuit. Additionally, the plaintiff must provide at that time the reasons why the evidence is relevant to the appeal.

However, it is also possible to provide evidence after the lawsuit is filed, provided that such evidence was not available or known at the time of the filing and that it is relevant to the claim.

Expert evidence could also be provided after the lawsuit filing. But its issues and content should be detailed in advance within the lawsuit.

Witnesses and experts may be summoned to appear and be questioned before the judicial body.

Finally, note that for evidentiary rules, the civil jurisdiction regulations are supplementary to those applicable within the contentious-administrative system.

In tax matters, our legislation incorporates the civil law rules regarding the burden of proof. Essentially, whoever asserts a right must also provide evidence supporting the facts that constitute it, using any legally accepted methods of proof. These methods are outlined in 4.3 Relevance of Evidence in Judicial Tax Litigation.

The question then arises: who should initiate or bear the burden of proof first in an administrative proceeding – the inspectorate or the taxpayer? The answer varies depending on circumstances.

This complexity arises because tax returns and self-assessments are actions taken by the taxpayer, acknowledging a taxable event. Therefore, taxpayers are generally bound by their own declarations or self-assessments, although they can request rectification if they believe they have made an error to their detriment.

Conversely, the tax inspectorate’s role is to verify accurate compliance with tax obligations. If it deems that the taxpayer has incorrectly self-assessed a tax (either by overpayment or underpayment), it must regularise the tax situation.

If the tax inspectorate challenges the taxpayer’s return or self-assessment, it must substantiate why the declared amount is incorrect, and justify the settlement action that regularises the tax situation. The taxpayer may then defend their position by providing counter-evidence. However, if the taxpayer wishes to review their self-assessment, they must first present the evidence supporting their claim. Moreover, the burden of proof for tax benefits or credits rests with the taxpayer.

In judicial proceedings (contentious-administrative claims) the burden of proof follows the general principles of the law. Therefore, whoever alleges a fact or invokes a right must prove its existence.

In criminal jurisdiction, the Prosecutor’s Office must discharge the burden and prove the commission of a criminal act during the trial. The presumption of innocence fully applies otherwise. This principle is also applicable to tax penalties.

In general, there is hardly any possibility of strategically scheduling the submission of evidence and/or arguments, since they must be submitted at the required times mentioned in 4.3 Relevance of Evidence in Judicial Tax Litigation.

The possibility of reaching transactional settlements or agreements on tax disputes is strictly forbidden by the law.

The best strategy is to avoid future litigation. The most effective way to do this is by consulting the best lawyers and consistently collecting evidence that can support the legal basis of a possible future claim. This could include evidence that demonstrates the rationale behind the legal actions, or evidence that can be used to challenge the appropriateness of an administrative action before the STA or any court.

Case law in the Spanish legal system is essential to guaranteeing the certainty and equality of citizens before the law, as well as the unity of judicial decisions. It also helps to complete and integrate the legal system.

The judgments handed down by the Spanish Supreme Court constitute binding case law in tax matters, which all administrative and judicial bodies are obliged to apply and follow. Judgments issued by the rest of the judicial system (National Court or high courts of justice, mainly) are not binding on different judicial bodies.

At the international level, the case law of the ECJ (in any issue related to EU tax law) is binding both on the Spanish courts (including the Spanish Supreme Court) and on the STA.

In tax appeals raising constitutional and fundamental rights issues, the case law of the Spanish Constitutional Court, the ECJ and the ECHR could be relevant before Spanish judicial bodies and in claims brought before those courts.

OECD guidelines are deserving of greater scrutiny from, and influence on decisions taken by, Spain’s jurisdictional and economic-administrative courts.

In Spain, Tax Litigation issues are judicially reviewed in the contentious-administrative system.

It is composed of the following judicial bodies:

  • the contentious-administrative courts;
  • the central contentious-administrative courts;
  • the contentious-administrative chambers of the High Courts of Justice;
  • the Contentious-Administrative Chamber of the National Court; and
  • the Contentious-Administrative Chamber of the Supreme Court.

In tax matters, the competence of the specific judicial body entitled to hear the appeal depends on the type of tax matter, the public body that issued the disputed administrative/tax act and on the amount appealed.

Contentious-Administrative Courts

The contentious-administrative courts will hear, at sole or first instance according to the applicable law, appeals against the tax assessments of local entities.

High Courts of Justice

The contentious-administrative chambers of the high courts of justice will hear, as courts of sole instance, appeals arising from:

  • the acts and resolutions issued by the regional and local economic-administrative courts that conclude the economic-administrative procedure; or
  • the resolutions issued by the Central Economic-Administrative Court regarding transferred taxes to the corresponding autonomous community.

Also, they will hear, as courts of second instance, appeals (for taxes amounting to more than EUR30,000) against judgments and orders issued by the Contentious-Administrative Courts.

National Court

The Chamber of the National Court shall hear, as court of sole instance, the appeals against acts of an economic-administrative nature issued by the Minister of Economy and Finance and by the Central Economic-Administrative Court regarding any taxes, with the exception of transferred taxes.

Supreme Court

The Contentious-Administrative Chamber of the Supreme Court will hear cassation appeals of any kind, in the terms discussed in 5.2 Stages in the Tax Appeal Procedure.

In general, there is no second judicial instance in tax matters, except in the case of local taxes (and in the event that the amount appealed exceeds EUR30,000).

The second instance appeal shall be submitted to the court which issued the judgment under appeal within 15 days of its notification, by means of a reasoned document containing the merits on which the appeal is based. The appeal shall be heard by the competent high court of justice, which shall decide within ten days from its resolution that the lawsuit was concluded for judgment. In practice, the ten-day term to issue the judgment is seldom respected.

Extraordinary Cassation Appeal

Cassation appeal is not an ordinary appeal but an extraordinary remedy to challenge certain judgments. The cassation appeal before the Supreme Court may only be admitted if all the following requirements are declared fulfilled by the Supreme Court:

  • the judgment from the first or second instance court infringed either the law and/or Supreme Court precedents;
  • there is an interest in passing judgment on the appeal related to precise binding precedents or issuing new ones; and
  • the appellants have provided evidence before the Supreme Court that the infringement committed by the instance court determined that court’s dismissal resolution.

The extraordinary appeal of cassation must be filed within 30 working days before the same instance court which raised the judgment that is challenged on cassation appeal. In this respect, this appeal could be filed against national court and high court of justice judgments. Furthermore, certain judgments raised by the contentious-administrative courts could also be challenged through this appeal.

Once it is presented before the same instance court which resolved the case at hand, and that court has granted initial leave for appeal, the appellant should lodge the appeal before the Supreme Court within 30 days. In this second procedural stage, the appellant may not introduce new arguments or legal grounds different from those filed at the first stage.

The contentious-administrative courts and central contentious-administrative courts are single judge bodies while the contentious-administrative chambers of the high courts of justice, Contentious-Administrative Chamber of the National Court and Contentious-Administrative Chamber of the Supreme Court are collegiate bodies (composed of two or more judges).

Judges are designated to serve in each judicial body on the basis of their experience and merits. They are all career judges (civil servants) and their independence from any authority is legally protected.

In Spain there are no ADR mechanisms regarding a pending judicial/administrative procedure.

In accordance with the provisions of the law, the rights of the Spanish Treasury may not be subject to the result of any agreed transaction either judicially or extra-judicially, nor may any disputes arising in connection with such pending procedures be submitted to arbitration, except by means of a royal decree agreed upon by the Council of Ministers. We are not aware of any case in which such arbitration had been approved.

Notwithstanding the foregoing, in tax audit procedures and before any litigation is initiated, the GTL regulates a special agreement between the Tax Authorities and the taxpayer (Actas con acuerdo) for cases of special difficulty, whether in applying a specific rule or for the assessment or evaluation of elements of the tax obligation subject to uncertainties in their quantification.

In such tax assessments, the taxpayer and the tax inspectorate agree not only on the parameters for determining the increasing tax debt but also on the scope of the penalty to be imposed.

See 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.

See 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.

Before the term to exercise their rights ends, or the possibility of filing tax assessments and/or self-assessments or the fulfilment of other tax obligations is over, taxpayers may contact the GDT regarding the tax regime, and the classification or qualification that corresponds to them in each case. The GDT has six months to issue a ruling and answer the request. However, in practice it takes longer to obtain a ruling and quite often the answer is delayed or unclear. Moreover, failure to respond within the required term does not imply acceptance by the GDT of the proposed content for the requested ruling.

The ruling shall be binding for the STA in charge of applying taxes in their relationship with the consultant. Also, the STA shall apply the criteria contained in the binding rulings to any taxpayer, provided that the facts and circumstances are identical to those included in such binding rulings.

It is very important that the case in question should be deemed to be almost identical to the one to which the binding ruling applies to avoid any kind of risk. However, if it arises from a close or similar situation, it could provide some legal certainty in order to show that a reasonable interpretation of the rules was followed and, therefore, that the subjective element (intention or negligence) required for tax penalties was lacking.

This is because in order to assess the existence of a punishable offense, the STA must prove not only the existence of the objective element of the type (the existence of a previous regularisation in which the administration has been harmed), but also the existence of the subjective element (fraud or guilt).

See 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.

See 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.

Tax Penalties and Tax Offences

Not every tax adjustment/tax assessment automatically leads to the imposition of a tax penalty. A tax infringement will only be considered as a tax offence if and when the following requirements are met:

  • the infringement results from a taxpayer action or omission regarded as an offence by the law;
  • the offensive action or omission is attributable to the taxpayer as a consequence of its intention or negligence (the subjective element of the offence).

Both the forbidden actions or omissions and the intention or negligence of the agent in causing them, must be proved by the administrative entities in the tax penalty procedure.

It is important to bear in mind the possibility of assessing the commission of tax offences in so-called anomalous legal transactions, namely tax sham or fraudulent legal transactions.

Since the modification of the tax regulations regarding fraudulent transactions (conflictos en la aplicación de la norma tributaria), it was established that the execution of such transactions generally does not lead to the imposition of tax penalties. Exceptions exist in specific cases and under particular circumstances; this primarily involves the existence of a conflict report that publicises actions expressly prohibited.

However, in matters of business simulation (tax shams), case law has been conclusive: all simulation implies a deception, and, by the very nature of deception, this simulated conduct implies an intent to defraud the STA. Consequently, the conclusion is that if simulation is found to exist, a penalty must be imposed.

Penalty Reductions for Co-operation

When a taxpayer waives their right to appeal a tax adjustment/tax settlement, it is entitled to a 30% reduction (in case of conformity) and a 65% reduction (in case of agreement) on any tax penalty arising from the infringement.

Furthermore, once the 30% reduction (in case of conformity) has been applied, where applicable, a further 40% reduction could be applied if the tax penalty is paid within the legal payment period and the taxpayer decides not to challenge it (not applicable when an agreement is finally reached).

Criminal Tax Offences

A criminal tax offence may be pursued as long as the debt resulting from the tax infringement exceeds EUR120,000 and it is proven that the taxpayer’s conduct was intentional (mens rea). The existence of criminal tax offences can be appraised during the tax audit/verification procedure. In such a case, the administrative proceedings must be suspended, and the prosecution referred to the public prosecutor’s office. If the public prosecutor or the judicial court or judge consider that there is no crime, the proceedings are returned to the STA.

Regularisation and Surcharges

At present, if a taxpayer, following a tax audit procedure, wants to regularise its tax situation regarding future tax periods to comply with the criteria settled by the STA in that procedure, a complementary tax return must be filed. And if a new tax debt arises due to the regularisation, a surcharge is applied. In this scenario the STA cannot impose any tax penalty.

However, the Supreme Court, the Spanish National Court and the Central Economic Administrative Court concluded – in broad terms – that in these cases the application of said surcharges should not be automatic and must be reviewed on a case-by-case basis. The purpose is to encourage extemporaneous but not spontaneous compliance (due to the taxpayer’s conduct being influenced by awareness of a previous tax action) with the STA’s criteria.

As mentioned in the Spain Law and Practice chapter of the 2022 edition of this guide, the “non-requirement” of surcharges has now been specifically regulated in cases in which the taxpayer extemporaneously and spontaneously regularises their tax situation in order to adapt it to the criteria previously established by the tax inspectorate in a tax audit procedure. This regulation is expected to provide certainty to the taxpayers in this regard.

However, regarding the existing case law and doctrine referred to above, a number of requirements must be met in order to do so:

  • for this to be done within six months from the day following the date of notification of the act of the tax inspectorate whose criteria are now being complied with;
  • that the taxpayer acknowledges payment of the tax debt resulting from the new self-assessment;
  • that the taxpayer does not request its rectification in the future; and
  • that the regularisation made by the STA during the tax audit procedure does not result in a tax penalty.

The tax verification proceedings are initiated first. Once they conclude with any tax assessment, the tax penalty procedure may be initiated, provided that the administrative entities consider there were tax infringements and penalties to be imposed.

When the STA find evidence of a criminal offence against the State Treasury/the public finances and the tax due is expected to exceed EUR120,000 (Article 305 of the Criminal Code), the procedure will be referred to the Public Prosecutor’s Office or the judge. With only some exceptions established by the law, the STA should issue two different tax assessments: one containing the tax due as a consequence of actions or omissions deemed to be the criminal offence, and the other containing the tax due as a consequence of actions or omissions different from those constituting the criminal offence.

The amount due as a consequence of a tax criminal offence is thus initially assessed by the STA and confirmed, amended or rejected afterwards by the courts. It must be paid at the time of the assessment and credited in accordance with the outcome of the final sentence of the competent court on the tax due (if any).

The tax penalty procedures may be initiated by the tax administrative entities following a tax audit procedure when they consider that a tax infringement has taken place. There are different tax infringements codified by the GTL that involve different tax penalties.

The criminal proceedings against a taxpayer must be initiated – and any tax infringement procedure on the same subject discontinued – when the STA consider that there is evidence of a tax criminal offence contained in the Criminal Code (Article 305) and the amount of the tax fraud exceeds EUR120,000.

Therefore, the difference between the offences and the procedures followed arise from the action or omission performed and the applicable law (GTL or Criminal Code). However, sometimes the STA tend to behave as if no clear legal distinction exists between administrative tax offences and criminal tax offences.

“Non bis in idem” issues and limitations may be raised according to the jurisprudence of the Spanish Constitutional Court, the ECJ and the ECHR when an action or omission was considered not to be a criminal tax offence or tax administrative offence and different proceedings are subsequently initiated or followed.

In the tax penalty procedure, the taxpayer is first notified of a “proposal of tax penalty” in order to file the allegations considered appropriate. Once the allegations have been reviewed, the “tax penalty agreement” is notified if those allegations were dismissed. This agreement imposes the respective tax penalty according to the “tax penalty proposal” unless the administrative body has accepted the arguments raised by the taxpayer. The “tax penalty agreement” can be appealed.

The criminal procedure is initiated when the STA refer the proceedings to the Public Prosecutor’s Office or directly to the criminal jurisdiction. The criminal procedure is composed of a set of procedural stages culminating in a trial before a general criminal court deciding on all kinds of criminal offences.

The criminal judicial courts are therefore different from the courts reviewing the legality of the settlement and the tax penalty.

The payment of the settlement issued in advance by the STA regarding the prosecuted criminal offence should afterwards be credited to the tax debt finally determined in the criminal procedure.

As mentioned in 7.1 Interaction of Tax Assessments with Tax Infringements, to date the tax penalty amount may be reduced by 30% (in case of conformity) and 65% (in case of agreement) if the tax assessment is not appealed, and by a further 40% (in case of conformity) if the tax assessment and penalty is not appealed and paid.

There is no such possibility regarding tax assessments and tax penalties either before their appeal or once appealed.

In the area of criminal offences, the STA will not forward the file to the Public Prosecutor’s Office if the taxpayer has fully accepted and paid their tax debt before being notified of the commencement of any proceedings aimed at determining the tax debt. In other words, the full recognition and payment of the debt on these terms prevents potential criminal prosecution and conviction.

Once criminal proceedings have been initiated against the taxpayer, it is possible to reach an agreement with the Public Prosecutor’s Office. In order to do this, it is necessary to accept all the terms indicated by the respective public prosecutor (such as paying the entire tax debt and accepting a large economic sanction). In the case of an agreement, the public prosecutor will reduce the length of the term of imprisonment that it is requesting from the court (when the proposed prison sentence is two years or less, the sentence can be suspended, resulting in no imprisonment for the taxpayer).

An appellate procedure (recurso de apelación) may be lodged against the conviction that ends the first instance. The judicial bodies competent to hear the appellate procedure are:

  • the provincial courts (Audiencias Provinciales) for sentences handed down by the Juzgados de lo Penal; and
  • the Appellate Chamber of the National Court with respect to sentences issued by the National Court.

In addition to the appellate procedure, a cassation appeal (recurso de casación) could be lodged before the Supreme Court against the judgments handed down by the provincial courts and the Appellate Chamber of the National Court.

A constitutional appeal (recurso de amparo) could also be filed before the Spanish Constitutional Court against the final sentences handed down by the provincial courts or the Supreme Court.

Article 954 of the Criminal Procedure Act (recurso de revisión de sentencias firmes) allows the review of a final judicial decision when the ECHR has declared that the decision in question violates any of the rights recognised in the European Convention for the Protection of Human Rights and Fundamental Freedoms, provided that the violation entails effects that persist and could not cease except by means of revision. The Criminal Chamber of the Supreme Court is the competent body to hear and decide on the case.

The Spanish Constitutional Court has ruled out tax transactions challenged under the GAAR (Article 15 of the GTL) being prosecuted as criminal tax offences.

Although it has not been specifically addressed and decided, a similar conclusion should apply in the case of tax transactions challenged under the SAAR contemplated in Council Directive 2009/133/EC applicable to mergers, divisions, partial divisions, transfer of assets and exchanges of shares. No transactions of this kind are known to have been prosecuted as a criminal offence.

Tax shams (Article 16 of the GTL) have always been prosecuted and sentenced as criminal offences.

There are also many rulings issued by the Supreme Court that refer to the GAAR and tax shams in administrative tax cases.

Controversies are increasingly common concerning the direct taxation of individuals who acquire tax residency in Spain and their jurisdictions of origin have a double taxation treaty (DTT) with Spain. These individuals typically have a high net worth, and although they are tax residents in Spain, they continue to have economic and property interests in other jurisdictions.

In these situations, it is crucial to determine whether the individual who becomes a tax resident in Spain under our domestic law can benefit from the protection provided by the double taxation treaty against any attempt by the other jurisdiction to challenge their residence outside Spain. And this is not always possible; mainly this happens when tax regimes are applied that do not tax worldwide income in Spain.

Where a DTT can be applied, the STA will generally make use of it to resolve double taxation situations as long as the taxpayer has evidenced that they can benefit from the DTT as they are resident for tax purposes in one of the contracting countries.

However, eventually it may happen that either the taxpayer does not agree with the way in which the DTT has been applied or the DTT has not been applied to the taxpayer even though it should have been.

In both cases, the taxpayer may urge the tax authorities of the country in which they are resident to initiate a mutual agreement procedure (MAP) – regulated by a DTT or in an arbitration convention – with the tax authorities of another contracting state. The outcome of the MAP depends exclusively on the tax authorities of the contracting states.

Even though recourse to a MAP has increased in recent years, it is not a widespread way of resolving double taxation disputes because of the limited chances of success. Therefore, domestic litigation is still the most common solution to double taxation issues.

There are not known to be any decisions related to the MLI or the EU Tax Disputes Directive that have had any consequence in this domain.

As a general rule, the STA apply the domestic GAAR and SAAR in cross-border situations covered by bilateral tax treaties (without further analysis of potential conflicts between domestic and conventional rules). However, most of the past challenges raised have so far been rejected by the Supreme Court.

In particular, administrative courts have followed the criteria upheld by the ECJ in the Danish Cases not only in the case of dividends but also in the case of interest payments. Spanish courts have not yet ruled on this matter.

The domestic GAAR and SAAR already are considered to include a principal purpose test (PPT). Due to this, we do not expect the new developments introduced by the MLI and the amendment of the DTT preamble to affect the way tax authorities fight BEPS in cross-border situations.

Transfer pricing adjustments are usually challenged in the domestic tax courts, as this is the only way to impose tax penalties. However, EU arbitration convention or DTT MAPs have been increasingly used to challenge major international transfer pricing adjustments in recent years.

Even though their use is still not widespread, advance pricing agreements (APAs) are becoming increasingly common in Spain. Requests for APAs have risen significantly in the last few years.

Spanish law provides taxpayers with a statutory right to seek APAs, whose filing procedure is set out below.

Pre-filing Actions

The company may file a preliminary request, with the following contents:

  • identification of the parties;
  • brief description of the transactions; and
  • basic elements of the intended pricing proposal.


The actual filing must be accompanied by a proposal that is consistent with the arm’s length principle and contain a description of the method and the analysis followed to determine the market value.


The tax inspection department of the STA will examine the proposal together with the documentation submitted. In addition, it may request additional information related to the proposal from the taxpayer, as well as explanations or clarifications.

Final Resolution

The APA filing procedure will be finalised when the tax inspection department approves or rejects the proposal filed by the taxpayer.

The cross-border matters which have traditionally generated the most litigation are transfer pricing issues and the deductibility of intra-group financial expenses.

There are certain actions that could eventually help to mitigate the above-mentioned controversies. These include:

  • requests for APAs, as explained in 8.4 Unilateral/Bilateral Advance Pricing Agreements;
  • formulation of binding consultations to the GDT in relation to those operations/transactions whose tax treatment may not be clear or straightforward;
  • carrying out non-aggressive but conservative and prudent tax planning; and
  • due justification and sound economic reasons underlying the operations/transactions carried out.

However, there are an increasing number of controversies regarding international tax residency issues with the STA, not only those related to ultra-high net worth clients/individuals, but also those related to the effective residency of entities (usually holding companies or heads of international structures).

In these cases, it is highly advisable to have received prior legal advice so that everything related to the residence is clear in each jurisdiction and can be accredited not only through double tax conventions, but also with any additional means of proof. It is important to keep in mind that these conflicts always have implications in at least two jurisdictions.

The risk of a taxpayer, whether an individual or a legal entity, being deemed resident in multiple jurisdictions is the potential for double taxation. This scenario, where more than one state levies taxes, can result in significant financial damage.

There is no record of any case/legal proceedings related to state aid disputes involving taxes.

There is no record of any case/legal proceedings related to procedures used to recover unlawful/incompatible fiscal state aid.

There is no record of any case/legal proceedings related to taxpayers challenging requests or additional tax assessments to recover unlawful/incompatible fiscal state aid.

Recently, two relevant tax rulings have been issued. The first one stated the legal invalidity of Form 720 (declaration of assets abroad) and the penalties, or implications of not filing it with the STA when there was an obligation to do so (see 1.2 Causes of Tax Controversies). The second has declared the unconstitutionality of the tax on the increase in value of urban land (Plusvalía Municipal) but incorporates a multitude of questionable limitations for taxpayers to review the liquidations that were dictated to them at the time.

The first ruling (Judgment of the Court of Justice of the European Union, First Chamber, of 27 January 2022, in Case C-788/19) led the Spanish government to amend the Spanish personal income tax regulations to eliminate the impossibility for taxpayers to prove the statute of limitations for income, presumed by the legislature to arise from the value of undeclared assets. At the same time, the tax regulations were amended to eliminate the specific (disproportionate) penalties for the non-filing or incorrect filing of Form 720.

In these cases, the regularisations dictated by the tax inspection at the time, on the basis of the penalties and sanctions associated with the Form 720 now annulled, and which were and are contested, will be won in administrative and/or judicial proceedings already initiated. But, in the event that the taxpayers’ claim had not been appealed or, if they had appealed, the taxpayers’ claim had been rejected through a judgment that is final, it will be possible to try to review it and obtain a refund through a special evaluation procedure, even demanding liability from the legislating state.

The second ruling issued by the Spanish Constitutional Court stated that Plusvalía Municipal is unconstitutional. However, this ruling cannot be applied retrospectively in broad terms. Consequently, only those taxpayers who challenged the tax levied in due time and are still pending resolution in the courts, are able to request the refund of the tax paid and potentially claim extra-contractual liability of the tax administration.

A significant point of contention regarding capital gains tax and its invalidity pertains to the effective date of the judgment; the question is whether it should be the date the judgment was issued or the date it was published in the Official Gazette. This detail is crucial due to the limiting effects that the judgment itself establishes, as it affects the feasibility of reviewing situations that have become final. Recently, in 2023, the Spanish Supreme Court affirmed the position that the effective date is when the judgment was published in the Official Gazette. Consequently, all appeals against assessments or requests for reviewing self-assessments lodged before that date should result in estimates of the claim.

The option is pending on final ratification (publication) by Spain of the MIL. The approved text includes the option to apply part VI to the CTA.

No DTT signed by Spain contains an arbitration clause.

The option adopted under the MLI is the one mentioned in 10.1 International Tax Arbitration Options and Procedures.

According to it (Article 19.12) Spain reserves the right for the following rules to apply with respect to its covered tax agreements notwithstanding the other provisions of the article:

  • any unresolved issue arising from a mutual agreement procedure case otherwise within the scope of the arbitration process provided for by this convention shall not be submitted to arbitration, if a decision on this issue has already been rendered by a court or administrative tribunal of either contracting jurisdiction; and
  • if, at any time after a request for arbitration has been made and before the arbitration panel has delivered its decision to the competent authorities of the contracting jurisdictions, a decision concerning the issue is rendered by a court or administrative tribunal of one of the contracting jurisdictions, the arbitration process shall terminate.

The approved text pending ratification (publication) also contains specific reserves excluding from Article 28(2)(a) of Part VI of the MLI, the following issues:

  • application of internal GAAR and SAAR rules; and
  • cases in which the party has been finally sanctioned according to criminal or administrative tax rules.

The approved text does not contain any specific option and/or provision on this subject.

This issue does not arise in relation to tax controversy in Spain.

As far as it is known, there has been no publicly disclosed use of recent international and EU legal instruments.

Pillars One and Two in Spain

The Spanish Budget Law of 2022 adopted, on December 2021, a minimum corporate income tax, in line with the purpose of Pillar Two released by the OECD. This measure, effective from 1 January 2022, provides a minimum 15% corporate income tax rate applicable to taxpayers whose net turnover equals or exceeds EUR20 million and to consolidated tax groups – irrespective of their net turnover.

Although this measure and Pillar Two aim to establish a minimum floor for corporate income tax, the mechanisms differ in terms of the configuration of the effective implementation and the taxpayers concerned.

Considering that this measure was approved ahead of the implementation of Pillar Two in Spain, it is expected to produce a quick response from the Spanish tax system.

Will Pillars One and Two Lead to Effective Dispute Resolution?

While Pillar One aims to establish standard international tax rules adapting the global income tax system to new business models, Pillar Two seeks to ensure a minimum level of taxation of large MNEs in the jurisdictions where they operate and generate revenues, regardless of the company’s tax domicile.

It seems that these proposals will ultimately provide greater legal certainty to the international taxation system, therefore preventing litigation. However, the implementation of new rules usually produces an increased number of controversies between taxpayers and tax administrations related to their legal interpretation and application.

Decisions should be made public according to general rules.

It is anticipated that the most common legal instruments to settle tax disputes would be DTTs after the MLI and EU Directives and Conventions. This expectation stems from the guarantees these instruments provide for dispute resolution.

To date, no specific instances of Spanish professionals actively participating or planning to participate in the international tax arbitration field have been reported.

There are no costs involved in the appeal for reversal (which is the first possible appeal that could be filed before the STA). Likewise, the economic-administrative procedure will also be free of economic charge. However, if the economic-administrative appeal is dismissed or considered inadmissible, and the Tax Administrative Court finds that the claimant/appellant displayed recklessness or bad faith, then they may theoretically be required to pay the costs of the procedure. The authors are, however, not yet aware of this possibility being used. However, as far as is known, this possibility has not yet been utilised.

There are the legal costs arising from parties’ lawyers and representatives. At first or single instance, legal costs will be imposed on the party whose claim has been dismissed, unless the court finds serious doubts about the facts or the applicable law.

Where the verdict recognised some claims but not others, each party should pay its own legal costs, unless the court, after giving due reasons, orders one of the parties to bear all of them because it has sustained its action or brought the action in bad faith or in a reckless manner.

At second instance, legal costs should be imposed on the appellant if the appeal is dismissed in its entirety. Legal costs may be awarded in whole or in part, or up to a maximum amount.

In cassation appeals, the legal costs corresponding to the previous instance should be decided based upon the above rules. The legal costs corresponding to the cassation appeal should be paid by each party unless the judicial court orders one of the parties to bear all of them because it has sustained its action or brought the action in bad faith or in a reckless manner. Cassation legal costs may be awarded in whole or in part, or up to a maximum amount.

Legal costs should be paid as requested by the court regarding each instance decision. Refunds are entitled in case of reversal. No interest is granted on these refunds.

In the event that the judicial court recognises the appellant/claimant’s (taxpayer’s) right and also grants it the refund of its legal costs, according to the rules mentioned in 11.2 Judicial Court Fees, it should order the STA to pay legal costs. Therefore, the STA will compensate the taxpayer in this respect.

In addition, the STA will have to pay interest on the corresponding late payment since the taxpayer paid the tax debt now revoked by the judge. In the event that the debt was suspended, the STA must also pay the taxpayer the cost of the guarantees provided.

In general, no further indemnities may be claimed. However, in exceptional cases, certain damages arising from the tax assessments (separate from the tax debts), interest on them and legal costs can be claimed when they resulted directly from the STA’s actions.

In this regard, it is important to bear in mind the recent change in relation to the taxation of late payment interest paid by the Tax Administration as a way of compensating taxpayers. The Supreme Court changed its criteria in a 2023 ruling, stating that these amounts should be taxed on the recipient (individual) at the savings rate. Prior to this ruling, they were not taxed.

See 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.

There are no publicly available statistics on pending cases.

There are no publicly available statistics on the number of cases relating to different forms of tax.

There are no publicly available statistics on the proportion of tax cases that end in total or partial success for either the STA or the taxpayer.

In recent years the use of electronic technology by the STA has increased and improved both the exchange of information between administrative entities at national and international level and the power to process and verify proper tax compliance from taxpayers.

In this scenario, in order to manage the associated risks of tax disputes/controversies, it is important to follow these recommendations.

  • A comprehensive and updated prior tax evaluation, as well as planning of transactions, should be performed, considering the approach of the STA to the transactions in question and the precedents from courts regarding issues previously raised by the STA.
  • Comprehensive evidence and documentary justification of any operation/transaction that could give rise to a tax controversy in a tax verification proceeding should be gathered.
  • Comprehensive and accurate tax compliance procedures should be performed, and the aforesaid evidence and documentary justification sent to the STA.
  • The burden of proof should be met through any of the allowed means of proof.
  • All the disputed issues, from the very beginning of the appeal, should be covered, properly addressing the questions of fact and law with sufficient evidence and legal arguments that are up to date with the latest binding precedents from the courts.
GTA Villamagna

Marqués de Villamagna 3
6th floor

+34 91 521 01 21

+34 91 575 76 85
Author Business Card

Trends and Developments


GTA VILLAMAGNA was founded by professionals of recognised standing, with over 30 years of experience in the civil service and private legal practice. The firm’s tax controversies team is formed by highly qualified former members of international law firms and national tax administrations. It enjoys a reputation as a handler of complex, sophisticated and highly demanding tax procedures and its team is recognised by clients and peers as one of the leading tax litigation departments in the Spanish market. Significantly smaller than all its major competitors, its senior qualified lawyers are actively involved in all of its services and offer personal attention. The firm has acted as legal counsel for major clients on some of the leading recent tax controversies in Spain and collaborates with leading law firms in many jurisdictions.

This article provides a concise analysis of the issues that are likely to spark much debate in Spanish tax circles in the near term, and which may lead to relevant tax consequences for taxpayers, including high net worth individuals and legal entities. The article focuses on (i) the problems arising from conflicts around tax residence, both domestic and international; and ii) the derivation of tax liability, including the importance of joint or subsidiary liability.

Tax Residence

Controversies concerning tax residency (both international and domestic, between autonomous communities/regions), which have been subject to tax audit procedures and judicial proceedings, have increased exponentially in recent years.

This trend is highly likely to continue due to globalisation and the importance of Spain as a “centre of vital interests” for specific clients, notably those from Latin America. Other reasons for a likely increase in tax residency controversies include:

  • the potential non-recognition of ownership and income/returns transparency due to the distinct wealth structures employed by high net worth individuals residing in many jurisdictions outside Spain; and
  • the use of particular legal and economic structures, often held or established in certain jurisdictions by these individuals, aimed at protecting their assets and ensuring succession.

Despite the fact that these structures are well regulated from a substantive and tax point of view, they are not recognised as such in Spain, at least not for the purposes for which they were created at the time in said jurisdictions (eg, trusts, fideicomisos colombianos, etc).

Compounding this issue, newcomers are often unfamiliar with the host jurisdiction’s tax residency legislation, the functioning of the tax system and regulations contained in applicable double tax treaties.

Therefore, it is crucial to understand the criteria for acquiring tax residence in Spain and the ensuing tax implications. The importance of receiving expert legal and tax advice prior to relocating to a new jurisdiction cannot be overstated. It is crucial for clients to understand the conditions for acquiring  Spanish tax residence and the ensuing implications in terms of direct taxation, including personal income tax, wealth tax and inheritance and/or gift tax. Furthermore, it is important to be aware of the obligation to disclose global financial information to the Spanish Tax Authorities (STA).

Acquiring tax residence in Spain also means acquiring residence in a specific autonomous community, each of which exercises considerable legislative power in tax matters. There are substantial differences between them, both in terms of personal income tax and wealth tax and inheritance and/or gift tax (eg, Catalonia has the highest tax rates, whereas Madrid and Andalucía have the lowest tax rates in Spain).

Acquiring tax residence significantly impacts an individual’s future personal taxation, including the general tax regime and worldwide income taxation or impatriate’s tax regime, if applicable. It also affects potential exposure to double taxation, wealth tax (including the new wealth tax Impuesto sobre las Grandes Fortunas), and ultimately inheritance and gift tax.

It is important to keep abreast of the regulatory changes in tax matters that impact or may impact the high net worth individuals planning to relocate to Spain. Specifically, the introduction of a new tax analogous to the wealth tax has been designed to complement the latter, targeting those autonomous communities where the wealth tax was previously unenforced, and the regulation of new cases that allow the application of the impatriates tax regime (Beckham Law).

Another circumstance worth noting is related to compliance with obligations to provide information on assets located outside of Spain (Form 720) and the anticipated obligation to report any cryptocurrencies held by the taxpayer as of 2023 (Form 721).

Concerning the residence of corporate entities or legal entities, particular attention should be paid to the location of the effective place of management (effective headquarters), since this issue may eventually attract the attention of the STA.

In any case, given the complexity of these issues, it is imperative to undertake a thorough professional analysis beforehand. This should take into account the need to substantiate tax residency using all available means of proof. Notably, tax residence certifications issued by relevant tax authorities as per the applicable double tax treaty are considered as qualitative evidence. However, it should be kept in mind that such certifications are not binding on a court and ultimately only another piece of evidence.

It is equally important not to lose sight of the fact that the Spanish state has extensive capacity to obtain information, both internally and internationally, resulting from the agreements signed with other states to this purpose.

Procedure for the Derivation of Tax Liability

Turning to another matter, it is worth highlighting the significant role and scope of the “responsible party” concept under Spanish General Tax Law, and its controversial interpretation and application by the STA in recent years.

In accordance with this concept, the Spanish legislature allows the STA to hold a third party accountable for another taxpayer’s debt, whether an individual or a legal entity, separate and alien to the legal-tax relationship of the debtor with the STA. On this basis, the liability may be either joint or subsidiary. The difference lies in the kind of relationship that exists between the principal debtor and the third party and the legal relationship that exists concerning their preferential obligation to pay the principal debtor’s tax liability. Thus, jointly and severally liable persons are on the same “level” as the principal debtor with respect to the obligation to pay the tax debt and they must always pay the debt in advance to the subsidiary debtor, if one exists.

The cases in which a third party can be held liable (jointly or subsidiarily), are explicitly and restrictively specified in the tax regulation. However, the STA will often interpret the articles governing the assignment of responsibility to a third party in a way that ensures the liabilities claimed by the STA are settled, even if these cases are subsequently contested and overturned. In fact, it is common for the STA to try to assess cases of joint and several liability.

In the STA’s view, the mechanism available to this end is the derivation of responsibility to a third party, since in practice it requires assigning an equal amount of debt to several persons simultaneously (individuals and legal entities). This practice, however, does not in any way authorise the STA to raise the amount of debt several times. Instead, it increases the probability of guaranteeing that someone will pay the liability or secure its payment as more people are involved. Indeed, if any of those involved (whether the principal debtor or those responsible third parties) pay the amount of the tax liability, the debt with the STA would be settled, giving rise to credit rights and liabilities between the debtor and the third parties concerned if the third party extinguishes the debt. On the other hand, if no one pays the debt, all of those involved would have to guarantee its amount through the means provided by the legislature.

Another significant issue arising from liability referrals is the length of time the STA has to pursue the responsible party. Depending on the type of liability, many years could pass before a person deemed liable is held accountable. This is the way it is structured in the General Tax Law. However, this can lead to scenarios where a defence becomes impossible due to the amount of time that has passed.

Litigation on procedures for derivations of responsibility to third parties is becoming increasing common in Spain. Courts (both administrative and judicial) often rule in favour of taxpayers, either on the grounds that the taxpayer does not meet the requirements for carrying out such a derivation or simply because the derivation is not correctly motivated (which is an obligation incumbent on the STA).

Given the circumstances and the direction in which the STA are heading in this matter, it has become essential to understand the conditions for assigning responsibility to third parties as stipulated by the Spanish tax law in order to avoid any actions that may later lead to an actual derivation.

All of this underlines the importance of evidence that, in this domain, can subsequently prove that the individual or legal entity in question was not and cannot be liable from a tax point of view. In the realm of litigation, and particularly in tax litigation, every procedure or lawsuit ultimately boils down to a matter of evidence.


Marqués de Villamagna 3
6th floor
28001 Madrid

+34 91 521 01 21

+34 91 575 76 85
Author Business Card

Law and Practice


GTA VILLAMAGNA was founded by professionals of recognised standing, with over 30 years of experience in the civil service and private legal practice. The firm’s tax controversies team is formed by highly qualified former members of international law firms and national tax administrations. It enjoys a reputation as a handler of complex, sophisticated and highly demanding tax procedures and its team is recognised by clients and peers as one of the leading tax litigation departments in the Spanish market. Significantly smaller than all its major competitors, its senior qualified lawyers are actively involved in all of its services and offer personal attention. The firm has acted as legal counsel for major clients on some of the leading recent tax controversies in Spain and collaborates with leading law firms in many jurisdictions.

Trends and Developments


GTA VILLAMAGNA was founded by professionals of recognised standing, with over 30 years of experience in the civil service and private legal practice. The firm’s tax controversies team is formed by highly qualified former members of international law firms and national tax administrations. It enjoys a reputation as a handler of complex, sophisticated and highly demanding tax procedures and its team is recognised by clients and peers as one of the leading tax litigation departments in the Spanish market. Significantly smaller than all its major competitors, its senior qualified lawyers are actively involved in all of its services and offer personal attention. The firm has acted as legal counsel for major clients on some of the leading recent tax controversies in Spain and collaborates with leading law firms in many jurisdictions.

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