Spain: Supreme Court on Tax Penalty Settlements and Appeals Limits

The Central Economic-Administrative Court published its decision regarding the appeal of the Spanish resident referred to as Mr. Axy against the decision of the Central Economic-Administrative Court and Regional Economic-Administrative Court of Madrid to reject his claim against the agreement to impose a sanction of up to EUR 663,414.41.

What is vital in this decision is the background story that led to the dispute and the Supreme Court's quoting position concerning questioning the settlement that has become final.

Background Story of The Case and Supreme Court Position

After concluding the tax audit and inspection, the Tax Administration imposed penalties and fines on Mr. Axy for not respecting the VAT obligations. After receiving the notification from the Tax Administration, Mr. Axy signed a settlement agreement.

The settlement agreement concluded that in 2016, Mr. Axy issued an invoice that had nothing to do with economic activity since he did not perform any activity. Therefore, he confirmed that the invoices were false. Moreover, by signing the settlement agreement and admitting that there was no economic activity in 2016, Mr. Axy, it became apparent that there could be no VAT deduction related to the invoices issued by the supplier XZ Asociados SLP.

The Regional Inspection Unit of the Special Delegation of Madrid further determined that Mr. Axy's actions were intended to commit tax infringement and issued an agreement to impose a sanction of EUR 663,414.41.

This agreement was also signed and notified in 2021. However, Mr. Axy later appealed against the imposition of the sanctions, but the Regional Economic-Administrative Court of Madrid denied the appeal. Mr. Axy appealed against this decision as well before the Central Economic-Administrative Court.

The Central Economic-Administrative Court denied the appeal, stating that Mr. Axy admitted the wrongdoing. Furthermore, the signed agreement is unassailable, as no appeal for reconsideration or economic administrative claim has been filed against it.

To further cement its decision, the Central Economic-Administrative Court quoted the Supreme Court's position: once a settlement becomes final, its legality cannot be questioned simply because of a sanctioning agreement's challenge. Moreover, this rule applies when the violations in question do not require a settlement for the legal process to be valid. In simpler terms, questioning the legality of such a settlement is not allowed if the law does not demand a settlement in the first place.

Conclusion

The case presented describes the importance of court practice on tax and VAT-related disputes and the influence that decisions from the Constitutional and Supreme Courts have on the decisions made by lower courts.

In addition, this case provides valuable insight into the consequences that may arise from violating the tax and VAT-related rules and regulations. 

Source: Central Economic-Administrative Court Publication