Tax Prescription

More specially, due to the patrimonial relevance it has, it is advisable to keep up to date with tax prescription, due to the fact that, the entrepreneur, sometimes, unconsciously, interrupts the tax prescription.

In every credit relationship, temporal limits are stablished to the creditor in terms of being able to demand his debt through the figure of prescription, without being, in the tax area, this limit an exception.

Prescription is regulated in the article 59 of the General Tax Law, when it determines the ways in which a tax debt can be extinguished, dedicating a special section (articles 66 to 70 GTL) to this question.

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What is Tax Prescription?

In the tax area, prescription is defined as a way of the extinction of the tax duties, provoked by the inaction of the Tax Administration or due to the lack of the exercise of their rights by the taxable persons, during the determined time in the law.

Tax prescription of the infraction vs Prescription of Tax Offence

Generally speaking, the GTL fixes a four-year deadline for the Administration to claim its position as a creditor, either to determine the tax debt through a timely assessment or to demand the payment of the assessment and self-assessment tax debts. The same deadline applies to the taxable persons to apply for returns derived from the regulation of each tax or to obtain returns of improper income and the refund of the cost of warranties.

It is also worth to take a special look at the crimes against the Tax Agency, governed by the Criminal Code, which prescription period is five years.

The calculation of the tax prescription deadline begins the day in which someone could started to exercise the right (dies a quo)

In this regard, the TEAC (Central Economic and Administrative Court) (Resolution of April 7^th 2005) established, for those deferred cases and payment fragmentation of a debt, that the prescription period begins in the date where the deadline for the voluntary payment finish, considering disruptive events of the same the deferred payments.

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Prescription and Limitation: Differences. Deadlines. Explanatory table.

Prescription: Legal concept according to which the passage of time consolidates factual situations. It allows the extinction of rights (extinctive) or the acquisition of foreign property (release – usucapion)

How is prescription interrupted?

One of the main characteristics of the prescription deadlines is the possibility of them of being interrupted, recalculated again from the beginning.

Article 68 from the GTL established the cases which interrupt the calculation of the prescription deadlines, although it is true that, in each tax, the case law has been qualifying and establishing the criteria to follow for both the calculation of the prescription deadlines and for the interruption of those deadlines.

In particular, in the case of the VAT the Supreme Court since the (•) Judgment of November 25^th 2009 has bid for the thesis of the partial interruption of the prescription, that it is to say, the Supreme Court understand that the annual summary VAT statement (which is in the end an informative statement that, obviously must complement the previous ones, but that it does not enjoy the consideration of self-assessment under no circumstances) interrupts the prescription of the right of the Administration to assess the tax with regard to each of the periods of declaration to which this annual summary referred to.

The Judgement begins by analyzing the nature of the annual VAT declaration in the field of the prescription:

“A first appraisal highlights the fact that the own content of the annual summary statement is not settled. Being this true, it cannot be ignored the fact that that statement is accompanied by other quarterly assessment-statements. The content of these statements must be congruent with the annual summary statement. Thus, if that was not the case, the annual summary statement and the assessments (quarterly in this case) would be contradictory. Therefore, reprehensible. This allows to conclude that even though the annual summary statement does not have a assessment content on its own, it implies and means a ratification of the various assessments made during a year”, and it continues by arguing: “(…) this element of the annual summary statement, of ratification of the sett assessments made during a year, it allows to allocate to those statements an interruptive content of the prescription, as a result of its settled content, and to which article 66.1 of the GTL gives an interruptive nature”

This Judgement turns out surprising if the content of the article 67 of the General Tax Law is analyzed. That precept states, most certainly, that the prescription deadlines will begin:

“(…) from the moment of the presentation of the corresponding statements or self- assessments”, adding the article 68 GTL (which regulates the cases of the interruption of the prescription) that : “(…) one of the cases of the same will be in the case we face before any reliable act of the taxable person that drives to the assessment or self- assessment of the tax debt”

Radical turn in the interpretation of the prescription

From this Judgement, the high court radically modifies the criteria that was being maintain up to that moment (••) considering that the annual summary statement has on its own a settled content. That implies and involves a ratification of the various assessments made throughout the year. Moreover, it implies to pave the way so that the same theory can be applied to other similar statements. And all of it without modifying at any times the law in force. In that case, they could have taken advantage of the reform made with the law 7/2012, on October 29^th, something that seems to contradict the principle of legal certainty.

Without prejudice of what was mentioned previously regarding the VAT prescription, the GTL establish in the article 68 the moment at which the prescription period starts to run again. In order to do that, it only evaluates the cases that can be considered as truly specials. In that sense it figures those in where the lodging of appeals before the contentious jurisdiction or the exercise of civil or criminal actions or the judicial declaration of bankruptcy of the debtor has occurred.

When does the time count start?

In the first cases, the prescription time count is initiated when the Tax Administration receives the notification of the firm resolution that ends the judicial process (which means that the time passed during those judicial processes does not have an effect for the tax prescription).

In the case of the judicial declaration of bankruptcy of the debtor the prescription time count will start again in the moment of approval of the bankruptcy agreement with regard to the tax debts that are not subject to the agreement, whereas, for those debts that are indeed subject to that agreement, the time count will start when they will result enforceable against the debtor. In the case that the agreement did not agree on the deadline, the prescription deadline will start again when the firm resolution regarding that circumstance is received by the debtor.

Conclusion

To conclude, it is remarkable the Judgement from the Supreme Court on December 15^th 2011 in which it is established that it lacks of interrupting power regarding the company taxation of the group, the actions taken with controlled companies, without express and formal knowledge of the parent company.

If you liked this reading you can consult the following article for further information:

Tax Simulations

(•) SC (Contentious-Administrative Chamber, Section 2), Judgment of November 25^th 2009. RJ 2010\1824.

(••) It is confirmed in the Judgments of January 25^th 2010 and January 18^th 2010 among others.