Tax Appeal Grounds and Enforcement Procedures
Grounds of Appeal
What grounds of appeal could be argued?
Firstly, we must note that, in principle, the obligation to pay income tax for 2005 prescribes on June 30, 2010, i.e., four years after the conclusion of the initial voluntary period. However, the beginning of the inspection procedure, namely a verification procedure specified in Article 141 of the LGT (Ley General Tributaria – General Tax Law), interrupts this term, according to Article 68.1(a) LGT. This interruption occurred on June 7, 2009, marking the start of the tax audit and investigation. The cited article states:
“The period of limitation of the right referred to in paragraph a of Article 66 of this Act is interrupted: a) For any action by the tax authorities, carried out with formal knowledge of the tax liability, leading to the recognition, regulation, testing, inspection, insurance, and liquidation of all or part of the elements of the tax liability…”
Furthermore, Article 150.1 LGT provides that “the actions of the inspection procedure should be completed within 12 months from the date of notification to the taxpayer of the start of the procedure.”
To this, we must add the provisions of section two of that article, which states:
“The undue interruption of the inspection procedure for failing to conduct any action for more than six months for reasons not attributable to the taxpayer, or breach of the term of the procedure referred to in paragraph 1 of this Article, shall not cause the forfeiture of proceedings, which will continue to completion, but will produce the following effects concerning obligations to settle outstanding tax: a) No prescription shall be deemed suspended as a result of inspections developed to undue disruption or during the period mentioned in paragraph 1 of this article…”
Therefore, taking into account that the term of the inspection procedure is more than one year, the limitation period of four years, which started on June 30, 2006, cannot be considered interrupted. Thus, the income tax debt for 2005 prescribes on June 30, 2010, and therefore, the proposed settlement and the penalties are not valid.
Penalty Reduction
On the other hand, bearing in mind that the taxpayer must sign the assessment in accordance with the proposed adjustment by the Inspectorate, according to Article 156.4 LGT, which reads:
“For the imposition of sanctions that may arise as a result of these settlements, apply a reduction under paragraph 1 of Article 188 of this Act.”
We proceed to the said Article 188.1 LGT, which states that “the amount of penalties imposed under Articles 191-197 of this Act shall be reduced by the following percentages: … b) 30% in cases of compliance.”
Therefore, a 30% reduction should be applied to the penalty.
Enforcement of Tax Penalties
Taking into account the circumstances of this case, could the tax authorities require DZ, through enforced recovery, the amount of the penalty imposed upon completion of the voluntary payment period allowed for this purpose?
According to Article 190.3 LGT, “The proceeds from penalties are governed by the rules contained in Chapter V of Title III of this Act.”
This refers to the chapter on “Activities and recovery procedure,” within which Article 161, specifically dedicated to collection in the voluntary period, states in paragraph 3:
“Begun the Executive period, the tax authorities will collect the liquidated debts or self-assessed debts referred to in paragraph 1 of this Article by the procedure of urgency regarding the assets of the obligated party.”
Section II of this chapter is precisely dedicated to the regulation of the compulsory process. In short, yes, the tax authorities may require, urgently, the amount of the penalty imposed upon completion of the voluntary payment period and the initiation of the Executive period.