When Reality Surpasses Fiction. Carrying Forward Tax Losses under Article 119.3 of the Spanish General Tax Law

Gloria Marín.

18/11/2021 Uría Menéndez (uria.com)


It is well-known that Spain’s Central Economic-Administrative Court rulings of 4 April 2017, 16 January 2019, 14 May 2019 and more recently of 22 September 2021 have declared carrying forward tax losses to be a right of the taxpayer under article 119.3 of the Spanish General Tax Law (“GTL”). Accordingly, the rulings state that it is not possible to carry forward tax losses in a self-assessment that is filed late (see Spanish Central Economic-Administrative Court rulings of 4 April 2017 and 14 May 19). The National Court of Spain has made it clear that it does not agree with this interpretation (judgments of 11 December 2020, appeal 439/2017, and of 18 February 2021, appeal 34/2018) and many are confident that the Spanish Supreme Court will finally put an end to this when it rules on the cassation appeals on this matter (judgment of 13 January 2020, appeal 4300/2020, and of 22 January 2021, appeal 4006/2020).

This would have avoided the following Kafkaesque situation: a company incurred losses in previous fiscal years and in the fiscal year of its dissolution it sold its main asset, obtaining a nice capital gain before being liquidated on 30 June, right in the middle of the fiscal year. However, the criterion established in the Spanish Central Economic-Administrative Court ruling of 2 March 2016 (issued in appeal 7498/2015 for the unification of criteria) on how to calculate self-assessment deadlines for corporate tax when fiscal years are different to the calendar year, was not taken into account. According to the criterion, the six-month period to approve annual accounts which starts to run after the end of the fiscal year, must be calculated on a date-by-date basis. As a result, the last tax return was filed on 25 January of the following year, one day after the deadline according to the ruling of 2 March 2016.

On the basis of the case law, the failure to file the self-assessment on time resulted in the tax loss carryforward being rejected and a consequent provisional assessment by the tax authorities (issued in a limited verification procedure) of more than EUR 4 million. There are many reasons why that provisional assessment could not succeed in law. The reason why our appeal was upheld by the tax authorities themselves —the need to limit the amount of the assessment to the liquidation share received by the partners in the dissolution of the company— had nothing to do with the issue at hand. But what this case does bring to light and what cannot be denied is that sometimes reality does actually surpass fiction.