{"id":13221,"date":"2026-09-29T09:15:31","date_gmt":"2026-09-29T07:15:31","guid":{"rendered":"https:\/\/blogtributario.garrigues.com\/?p=13221"},"modified":"2026-09-28T15:28:56","modified_gmt":"2026-09-28T13:28:56","slug":"the-tax-authorities-cannot-adjust-a-taxpayers-position-through-alternative-exclusionary-arguments","status":"publish","type":"post","link":"https:\/\/blogtributario.garrigues.com\/en\/ruling-decisions-case-law\/the-tax-authorities-cannot-adjust-a-taxpayers-position-through-alternative-exclusionary-arguments","title":{"rendered":"The tax authorities cannot adjust a taxpayer\u2019s position through alternative exclusionary arguments"},"content":{"rendered":"

According to the Supreme Court, it is not valid for tax auditors to deal with a finding of fraud upon the law potentially being set aside by providing other adjustment alternatives in the assessment.<\/strong><\/p>\n

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In its judgment 3035\/2026 of July<\/a> 7, 2026, panel two of the Supreme Court\u2019s Judicial Review Chamber has established a precedent which perhaps leaves more questions open than might be apparent after a first reading. I will begin with the facts and a description of that precedent.<\/p>\n

Several transactions considered to involve fraud upon the law were reviewed in successive tax audits on an entity. In some of these transactions the entity received a contribution of shares, which led, after several capital increases and reductions, to the dissolution of that subsidiary with a capital loss. The tax auditors found that these transactions should be classed as fraud upon the law and in the resulting assessment denied deduction of that loss.<\/p>\n

The Central Economic-Administrative Tribunal (TEAC) set aside the finding of fraud upon the Law, after concluding that article 15 of the General Taxation Law (LGT) and the so-called conflict in the application of tax provisions were already applicable. However, and here lies the interest of this case, in relation to the specific transaction mentioned the tax auditors had stated in their assessment that, if a court rejected the existence of fraud upon the law, the loss could not be allowed either, because the provisions of paragraphs two, three, four and six of article 15 of the then current Revised Corporate Income Tax Law (TRLIS) would apply. In other words, that loss would not be deductible after evaluating the transactions under the rules in that article. Based on this, TEAC, in the same decision, set aside the finding of fraud upon the law, but confirmed the validity of the adjustment, by applying that article 15 TRLIS. The National Appellate Court, indirectly, accepted this approach, which the Supreme Court has now rejected.<\/p>\n

For the Supreme Court, it can be gleaned from the authorities\u2019 finding that the auditors had doubts about the appropriateness of the finding of fraud upon the law itself; and therefore provided a different reason for adjustment, which was an alternative to, although also incompatible with, the first. In relation to this, the court could not see how it is possible for the auditors themselves to define the legal effects of their actions falling outside the law, and stressed further that article 15 TRLIS does not constitute an anti-abuse rule conceived as an alternative to fraud upon the law or to conflict in the application of tax provisions. Conversely, that article of the TRLIS can only be applied in relation to correct transactions, not tainted by any abuse, and the tax authorities cannot treat a transaction as fraudulent or not fraudulent in the same assessment.<\/p>\n

The court noted that this was not a question of using “[a] secondary and alternative argument provided as a precautionary measure in the assessment decision itself”, in that the auditors\u2019 approach instead produced a new and different assessment, denying the taxpayer of the appropriate right to a defense against this second alternative, because the citing of article 15 of the TRLIS was not adequately detailed or explained in the first assessment.<\/p>\n

The judgment establishes a principle that is very close, in the writer\u2019s opinion, to a case of setting aside a finding of fraud upon the law, a setting aside that does not allow article 15 TRLIS to be applied without causing denial of the right to a defense.<\/p>\n

On this basis, it could be understood that the Supreme Court has rejected that it is legally possible, always and in every case, for the tax authorities, when issuing an assessment, to provide a secondary alternative to the main approach.<\/p>\n

This definitely seems to be the solution in the domain of anti-abuse rules, which the Supreme Court itself has repeatedly said are not interchangeable, and that the tax authorities are required to state clearly which rule is chosen as the legal basis for their adjustment and must follow the path that this particular rule lays down.<\/p>\n

However, procedural rules are based on the distinction between claim, grounds and arguments and it is generally accepted that there may be a secondary claim and there may be main and secondary grounds and arguments that can also modulate the result of the upholding of a claim. Can the tax authorities apply this reasoning in their decisions and assessments? Probably not in the same way as the taxpayer, although it does not seem possible to require a single solution in every case. The Supreme Court itself accepted that the auditors could have used a secondary and alternative argument in the assessment. Therefore, it seems that the tax authorities can base an assessment on more than one different argument, some of which may succeed and others may not, assuming that in the end the decision outcome of the measure or assessment does not change; although they cannot provide alternatives to the validity or invalidity of anti-abuse rules.<\/p>\n

By chance, the Supreme Court examined a similar situation in a judgment issued the day before the discussed judgment. In its judgment 3034\/2026, of July 6, 2026,<\/a> it dealt with the consequences of an adjustment excluding taxpayer from the objective assessment method for personal income tax purposes. A first review denied application of that regime for 2018, because the requirements in the law were not met. In a second review, an assessment was issued for 2020, excluding the taxpayer from that method because the exclusion in 2018 had effects for that year and the following two. The 2018 assessment was later set aside, however, because it was issued in a limited review with a scope that had been incorrectly expanded. And in the proceedings to hear a challenge to the 2020 assessment, it was examined whether it should be set aside purely as a consequence of the setting aside of the previous one for 2018; or whether it should or could be confirmed.<\/p>\n

On the subject of interest here, the Supreme Court affirmed that the setting aside of the first assessment disallowed further implementation of any consequence of that assessment in the second, because the 2020 assessment was based exclusively on the exclusion effect of the 2018 assessment for the following two years; and nothing was included in the 2020 assessment to make the taxpayer subject to the direct assessment method, beyond confirming the consequences of the 2018 assessment. But, we add, could the tax authorities have said in that second assessment, perhaps as a secondary argument, that beyond that legal consequence the requirements to apply the objective assessment method were not met that year either? It seems so.<\/p>\n

Conversely, it would be more questionable if the tax authorities issued an assessment providing, not a secondary argument, but a different alternative in which the result of the assessment changed, by classifying the income as income from movable capital for example, or, alternatively, as a capital gain. This practice would be completely unacceptable if the alternative involves changing the fiscal year or the tax; and in such cases we would already have entered the domain of related obligations or the so-called \u201csecond shot\u201d rule, with the uncertainty that this entails and the delay that it means for tax procedures.<\/p>\n

As we can see, there might be more open questions than we think, and the tax authorities themselves could lead the way to reflection on a future regulatory solution that offers both justice and certainty in the application of the tax system.<\/p>\n

Abelardo Delgado Pacheco<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

According to the Supreme Court, it is not valid for tax auditors to deal with a finding of fraud upon the law potentially being set aside by providing other adjustment alternatives in the assessment. In its judgment 3035\/2026 of July 7, 2026, panel two of the Supreme Court\u2019s Judicial Review Chamber has established a precedent […]<\/p>\n","protected":false},"author":7,"featured_media":13217,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[103,99],"tags":[1172,1173],"coauthors":[831],"class_list":["post-13221","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procedure","category-ruling-decisions-case-law","tag-finding-of-fraud","tag-tax-inspection"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\t