According to the case law of the Supreme Court, it is necessary to offer a new hearing when a proposal to impose a penalty is rectified (even to reduce it), so that its omission determines the nullity of everything that has been done. The Audiencia Nacional has already concluded in the same way when it is a question of rectifying a settlement proposal.
In any administrative verification procedure, the hearing process prior to the issuance of a tax assessment is an inalienable right of the taxpayer and a guarantee of unavoidable observance for the administrative body. In the field of administrative sanctioning law, the relevance of the hearing procedure grows exponentially, and its absence represents a clear violation of the right of defence enshrined in Article 24 of the Spanish Constitution.
In its judgement of 18 May 2020 (appeal 5732/2027), the Supreme Court stated, in fact, that in penalty proceedings, the hearing procedure has constitutional relevance and that its omission determines the nullity of the proceedings (without the possibility of rectification) as it manifestly violates a fundamental right. This judgment confirmed the radical nullity of an agreement to impose sanctions that ended a sanctioning procedure in which, although the hearing procedure was not omitted, the agreement was issued without waiting to receive the allegations made by the taxpayer and, therefore, without taking them into account.
This criterion has been maintained in subsequent judgements of the Supreme Court, not only in relation to the hearing process that must be granted when a first proposal to impose a penalty is issued, but also in the specific case in which the penalty is subsequently modified (and reduced) as a result of the partial acceptance of the allegations made against the assessment signed in a contested basis. In these judgments, the Court has highlighted the obligation to grant a new hearing for the “second” penalty proposal and has confirmed the radical nullity of the penalty issued without respecting this procedure, without the possibility of rectification.
Thus, in its judgement of 27 November 2023 (appeal 947/2022) and in its most recent judgement of 13 May 2024 (appeal 7454/2022), the Court analyzed a case in which, after the issuance of the preliminary assessment and before issuing the final assessment, the tax inspectorate notified the taxpayer of the proposal to impose a penalty, in accordance with the content of the preliminary assessment. Subsequently, the chief inspector, after partially upholding the allegations against the preliminary assessment, issued the final assessment, but without issuing a new proposal; and also issued an agreement to impose a penalty without a prior proposal, adapting its content to the amounts finally regularized, i.e., demanding a lower penalty than that included in the initial penalty proposal.
This practice contravenes the provisions of the current Article 25.7 of the General Tax Penalty Regulations, which establishes that, when the body competent to impose the penalty rectifies its proposal, it must notify the new proposal to the taxpayer, informing him of his right to make allegations. This provision of the regulations must be read in conjunction (as indicated by the Supreme Court itself) with (i) Articles 208.3 and 210 (paragraphs 4 and 5) of the General Tax Law, which guarantee and regulate the right of those affected by penalty proceedings to be notified of the facts and infringements of which they are accused and to make submissions and use the means of defence allowed by the legal system; (ii) Article 24 of the Spanish Constitution (effective judicial protection); and (iii) Article 47 of the Law on Common Administrative Procedure for Public Administrations, which refers to the nullity of administrative acts that infringe rights and freedoms susceptible of constitutional protection.
Taking into account this regulatory framework, the Court concludes in the aforementioned judgments that, in the case analyzed, an essential procedure has been dispensed with and a “flat” sanction has been imposed, given that “omitting to give the interested party a hearing is not only not provided for in the tax regulations, not even in cases of “mere adaptation” of the annulled sanction to the resulting tax debt – as is now the case – but, furthermore, it is not permitted by the Constitution“. In other words, the Court equates the failure to grant a new hearing with the omission of this and recalls that this omission is directly contrary to the right of defence enshrined in our Constitution. And, finally, it concludes that the omission of the new hearing procedure entails the full nullity of the sanctioning agreement and determines the nullity of all the proceedings, without the possibility of subsequent rectification.
Following these pronouncements in the area of the penalty procedure, it is worth reflecting on the principles of hearing and contradiction in the framework of the inspection procedure itself and, specifically, on the hearing procedure when what is rectified is the proposed assessment contained in the tax assessment and this rectification affects matters not alleged by the taxpayer in the allegations procedure against the tax assessment.
Firstly, and in general terms, it should be recalled that the Supreme Court has already ruled repeatedly on the importance of the hearing process in the framework of the inspection procedure, as well as highlighting its effectiveness, among others, in its judgments of 13 December 2017 (appeal number 2848/2016), 18 May 2020 (appeal number 5732/2017) and 12 September 2023 (appeal number 3720/2019). In the last of these judgments, in fact, the court went a step further by considering that failure to comply with the hearing and pleadings procedures under the principle of good administration can determine, directly and without requiring accreditation by the taxpayer of the defenselessness suffered, the full nullity of the tax assessment issued by the tax inspectorate.
This should also apply in the case of the hearing procedure relating to a proposed assessment that modifies the first assessment issued, in accordance with the applicable regulations. In particular, Article 188.3 of the General Regulations on tax management and inspection actions and procedures and on the development of the common rules for tax application procedures, which specifies the rights recognised in Articles 34.1 and 157.5 of the General Tax Law, establishes that if the body responsible for assessment considers it appropriate to rectify the assessment proposal made by the field inspector (for example, by increasing the amount of the resulting tax liability, introducing new concepts and adjustments that have not been considered by the filed inspector or modifying in a new way the grounds used in the preliminary assessment), it is mandatory to grant a new hearing so that the taxpayer can make allegations.
In the same way as the Supreme Court has done in the area of penalties, the National Appellate Court has concluded that the lack of a new hearing procedure in these cases determines the full nullity of the assessment, without the possibility of remedying it (judgments of 15 October 2015 and 12 April 2021), when, if the procedure had been properly granted, the assessment would have been issued outside the maximum period for concluding the inspection procedure. In a similar vein, the TEAC has expressed very clearly, in its rulings of 18 September 2018 and 23 March 2021, that the Administration cannot obtain any advantage from the failure to carry out a procedure that the regulation considers obligatory, because this would mean rewarding the initial disregard of said procedure.
In the absence of pronouncements by the Supreme Court analyzing this specific case within the scope of the inspection procedure, it follows from the criteria maintained by the Audiencia Nacional and the TEAC (as well as from the case law of the Supreme Court on the hearing procedure, in general, in the inspection procedure) that the protection of the right of defence of those subject to inspection and the right to due administrative process should prevail, especially in those cases in which such omission would have allowed the Administration to obtain some advantage in terms of compliance with the time limit of the inspection procedure and/or the avoidance of statutes of limitation of the Administration rights.
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