In recent rulings related to the deduction for R&D&i in Corporate Income Tax and for Hydrocarbon Tax, the Supreme Court offers important reflections on the value of expert evidence in tax proceedings and on the value of reports issued by officials of the Tax Administration itself.
The Supreme Court has recently handed down five important judgments on the application of the deduction for research and development and technological innovation activities (judgments of 8 October and two of 9 October 2024, supplemented by the last two of 4 November 2024 – ECLI:ES:TS:2024:5850 and ECLI:ES:TS:2024:5872-). The latter have an important dissenting opinion. As we have already commented in this blog, in these judgments the High Court specifically ruled on the value of the reports of the Ministry responsible for scientific innovation, establishing that a report issued by an administrative body, confirming the right of an entity, cannot be refuted by a report to the contrary from the same Administration, even if that report is issued by a body within a different sphere of that same public Administration.
Admittedly, the Supreme Court’s position is qualified by stating that this doctrine would only be fully applicable during the validity of article 35 of the revised text of the Corporate Income Tax Law, approved by Royal Legislative Decree 4/2004, of 5 March. And, on the other hand, it would not be fully applicable from the entry into force of article 35 of Law 27/2014, of 27 November, on Corporate Income Tax. Despite this caveat, the Supreme Court’s doctrine is based on principles that transcend the nuances contained in these two provisions, which, moreover, have a practically identical wording, for the purposes that matter now, in letter a) of the fourth section of each of them. Indirectly, the TEAC recognizes this when it assumes this doctrine in the resolution of 21 October 2024 (00/00199/2022/00/00).
However, the purpose of these lines is not to return to this question, but rather to address another more general issue raised by these rulings, namely the meaning of expert evidence in tax proceedings and the value of reports issued by Tax Administration officials.
The first of the aforementioned rulings, with a criterion followed by the following rulings, refers to another ruling of 17 February 2022 (ECLI:ES:TS:2022:597), of the 4th section of the Administrative Chamber of the Supreme Court of Justice (Contentious Administrative section). This previous ruling, on a non-tax issue, opened a transcendental debate on the probative value of expert reports when the expert is a civil servant of the Administration itself. The subsequent reference to this ruling, in the context of the reports on the aforementioned deduction in corporation tax, left several questions pending which, moreover, have not been resolved by the latest Supreme Court rulings, those of 4 November, despite the differences in these cases due to the use of expert evidence in these proceedings.
To conclude the problem, the Supreme Court has not only dealt with these evidentiary issues in the aforementioned judgments. In two other judgments dated 20 September (ECLI:ES:TS:2024:4713) and 25 September 2024 (ECLI:ES:TS:2024:4714), on the reimbursement of a tax contrary to European Union law, the High Court refers to the proof of the transfer of that tax, stating that the burden of proof lies with the Administration, without the latter having provided such proof, not even by requesting that the proceedings be admitted as evidence at first instance in the response to the application; This, in the absence of any clarification in the judgment (relating to the regional section of the tax on hydrocarbons) leaves open the question of the limits of this possible evidence provided or requested by the defendant Administration itself.
In our opinion, this case law, perhaps still incomplete, should make us understand, in the first place, the importance of evidence in tax proceedings. Often, the application of taxes or tax disputes arise as a debate on questions of normative interpretation. However, the importance of proof of the facts on which the debate actually rests is then forgotten. To give a few examples, the determination of tax residence, the application of the restructuring regime or the application of anti-abuse rules always raise a question of proof. That said, in our view, this recent case law raises two fundamental questions.
First, this doctrine affects the evidentiary value to be given to reports issued by officials of the Administration itself. By adopting the doctrine arising from the ruling of 17 February 2022, it is therefore assumed that government officials may act as experts by issuing expert opinions; but the assessment of this expertise must be made taking into account whether this evidence is intended to be used in a process in which the government is a party and, in this case, what the dependence of the official issuing the opinion is on the acting body. Moreover, even in the case of expert opinions issued by civil servants with a certain degree of autonomy, it may not be possible to accept that we are dealing with true expert evidence if the parties have not been able to ask for the explanations or clarifications provided for in articles 346 and 347 of the Civil Procedure Act (LEC). In such a case, we are told, such reports must be assessed as administrative documents.
For this reason, in transferring this doctrine to the tax sphere, the Supreme Court states that the report of the computer support team cannot be assessed without considering that this body is part of the Central Large Taxpayers’ Office itself, which reduces the impartiality of its members in matters originating from the Tax Inspection of the same Office. Such reports, moreover, should not appear as mere documentary evidence, presented to a court of law as part of the administrative file.
This doctrine makes it clear that a court cannot attribute to these expert reports from the Administration the value of legal or privileged evidence that they lack; on the contrary, the court must give reasons in each case for the evidential value it attributes to such reports in the light of all the evidence, including other expert evidence, provided by the parties. But this same doctrine leaves open the question of how to frame the practice of this supposed expert evidence in the process, when it is based on reports already issued in the administrative procedure.
Secondly, this case law redefines the role of the Administration in the contentious-administrative process. Traditionally, the defendant Administration has limited itself to defending the legality of the contested act, on the basis of the administrative file and rejecting the sufficient probative value of the evidence provided by the plaintiff. Should this traditional position change? Although the recent judgments of 4 November 2024 do not precisely clarify this question, it can be understood that the Administration cannot take the evidentiary initiative as a defendant to complete the file or change the grounds of the contested act. On the other hand, it could react to the evidence proposed or provided by the plaintiff, or to supervening circumstances, by providing or proposing new evidence in the defence to the claim. If such evidence consists of the expert report of an official of the Administration itself, the impartiality of this expert must be assessed in accordance with the criteria set out above and the possibility of ratification and clarification of these expert reports must be opened, in accordance with articles 346 and 347 of the LEC, in relation to article 60 of the Law on Contentious-Administrative Jurisdiction, although all this body of evidence must then be assessed by the court in accordance with the rules of sound criticism.
