When Discretion Is Exercised to the Detriment of the Taxpayer

Gloria Marín.

17/05/2022 Uría Menéndez (uria.com)


Tax adjustments through the application of the sham doctrine are not uncommon where services are invoiced by a company instead of by the true provider (an individual). In these cases (there are others, based on the application of the regulations on transactions between related parties), the overpaid corporate income tax is refunded and the individual is ordered to pay personal income tax, together with the penalty for unpaid tax pursuant to article 191.1 of the General Taxation Law (“GTL”). This is classified as a very serious infringement due to the fraudulent means used (false or falsified invoices, and intermediary persons or entities). It is also not uncommon for the company to be held liable, under article 42.1 a) GTL, for the individual’s unpaid tax and for the penalty imposed.

In some – fortunately isolated in our experience – cases the “intermediary” company, which has been required to pay the tax and the penalty imposed to the individual via derivation, is also subject to the penalty under article 201.3 GTL for non-compliance with invoicing obligations.

This raises the following questions: isn’t the act of issuing the invoice through the intermediary company – the alleged infringement under article 201 GTL – also the act through which the article 191 infringement GTL (use of a false document, with the aggravating circumstance of fraud) is committed, as well as the factual basis for transferring the liability to the company under the derivation of liabilityprocedure? Is this not then precisely the situation covered by the concept of concurrence of offenses as a means (concurso medial) – i.e. the commission in a single act of two or more concurrent infringements, one of which is indispensable for the commission of the other? Does the rule in article 29.5 of the Law on the legal framework governing the public sector (“LLFPS”) not seek to provide a regulatory solution to such situations? Let us recall that it expressly stipulates that “when the commission of an infringement necessarily leads to the commission of another or others, only the sanction for the most serious infringement must be imposed”.

So far, the Supreme Court has only sought to respond to the excessively punitive result of such decisions through the narrow terms of article 180.1 GTL: “an act or omission that is a criterion for determining the seriousness of an infringement cannot be sanctioned as an independent infringement” (judgments 1177/2020 of 17 September and 3318/2015 of 6 July). In our opinion, the answer could also be found in the above-mentioned article 29.5 LLFPS. But as long as this is not the case, and a solution must be sought to the punitive excess caused by the concurrence of offenses in the solution offered by article 180.1 of the GTL, the application of this rule should not be denied in cases where services provided through companies are regularised and the tax inspectorate identifies both the use of false invoices as well as the “intermediary” function of the company as aggravating circumstances, because the two are inextricably linked. Regarding penalties, the tax authority does not have – and should not have – the discretion to choose the aggravating circumstance that leads to excessive punishment in a case in which both should be assessed equally, since both are evidence of the same reality. This supposed discretion should – in our opinion – not apply in sanctioning matters, and exercising it to the detriment of the taxpayer should be forbidden.

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