TEAC’s controversial decision and the doubts it raises
The decision of the Central Economic-Administrative Court (“TEAC”) on April 4, 2017, gave rise to a controversial and burdensome situation for the taxpayer whose questions have not been completely resolved later by the courts of justice and which is in contradiction with the own interpretation that the same TEAC has made in its previous doctrine.
In this decision, the TEAC understands that the compensation of negative tax bases (“BINS“) in the declaration of Corporation Tax (“IS”) is considered a “tax option” in the sense of article 119.3 LGT, since it considers that the taxpayer has the “option” to choose between offsetting those BINs or not, and if applicable, with what amount to do so. Consequently, we should take into account what is established in the same 119.3 LGT when it provides that
“The options that according to the tax regulations must be exercised, requested or waived with the presentation of a declaration may not be modified after that moment, except that the modification is presented in the statutory declaration period”.
In summary, and for this case, the BINs must be compensated at the time the declaration is filed, without allowing the possibility of subsequent modification except if it is carried out in the regulatory period to present the return.
In this sense, there are two key elements to consider in this decision that is controversial, whose interpretation made by the TEAC is, in our view and the one of previous case law, a mistake.
1) The definition of “tax option”
There is no legal definition of the concept “tax option”, so we must see the interpretation that the doctrine has made. In this sense, the TEAC itself in its decision 508/2008, of December 18, 2008, established that any option exercised by the taxpayer must result from an expression of the individual will after making a value judgment on the part of the taxpayer. If this is the interpretation that prevails, in our case we are facing the exercise of a right, not a tax option.
On the contrary, the controversial resolution of the TEAC of April 4, 2017, is based on the definition of “option” given by the Dictionary of the Spanish Language of the RAE as
“freedom or power to choose”
or
“right to choose between two or more things based on legal precept or legal business ”,
among others, so that he understands that the fact that the legal rule allows choosing between compensating or not the BINs implies that we are facing a tax option.
2) Is the submission after the deadline a correction?
In any case, even if it were accepted that we are facing the exercise of a tax option (consequently applying article 119.3 LGT) this would not imply the impossibility of offsetting the BINs, also in the case that the submission is made after the deadline. Taking into account the literality of the same article already detailed above when it states that
“they may not be modified after that moment unless the modification is presented in the statutory declaration period.”,
this prevents the modification of an option that has been exercised previously but does not prohibit the exercise of this after the deadline.
Among others, in the decision of TEAC itself 1216/200, on September 11, 2002, in which the question is raised regarding whether failure to comply with the deadline for filing the declaration corresponding to a settlement period prevents the exercise of the option for the return of the negative balance resulting from the same, which must be compensated in future years, to which the TEAC stipulated that
“the legal and regulatory requirement is only that the request is formulated in the corresponding declaration (…) without the presentation after the deadline being able to attribute an unforeseen consequence and as serious as preventing the exercise of a right recognized by law ”.
The jurisprudence after the TEAC decision is ambiguous
The TEAC resolution is not the only decision of an administrative body or a court that is expressed in the sense of not allowing the application of the BINs compensation in an extemporaneous declaration of the IS. In a similar sense, the same TEAC in a decision of May 14, 2020, as well as the General Directorate of Taxes (“DGT”) in the binding consultation V2496//2018, of September 17, 2018, has also applied this criterion.
Also, the judgments of the Superior Court of Justice (“TSJ”) of Galicia, in the judgment of February 22, 2020, and of the TSJ of Castilla y León, in judgment 219/2019, dated December 16, 2019, have accepted the TEAC doctrine. In this last ruling, the TSJ of Castilla y León established that
“the IS taxpayer can compensate the BINs that are pending application or may not compensate them, (…) and this means that they can choose to compensate them or not compensate them, being able, in addition, choose the taxpayer in what period or periods it compensates and in what amount”,
so that
“if the modification of the exercise of the option can only be made within the regulatory period, as established in article 119.3 LGT, the option itself can only be exercised within that period ”.
Notwithstanding, it is true that in recent judgments of other TSJs of different Autonomous Communities the jurisprudence has decided in the opposite direction. Thus, the TSJ of Valencia, on January 25, 2015 (decision 71/154), prior to the controversial resolution of the TEAC, already established that, in the case of compensation of BINs, we are not facing a tax option of those of article 119.3 LGT and that, therefore, its omission within the voluntary term of submission of the declaration does not represent a waiver of said benefit.
Also in the TSJ of Cantabria, on May 11, 2020, (decision 137/2020), it was established that the extemporaneous presentation of the declaration already has its legal consequences in terms of the offence, since the regulations provide for the sanction of a fine, but not the loss of benefits, exemptions, powers or options included in the declaration. In this way, it understands that this does not refer to the nature of the right to compensation, whether it is an option right or not, but to the consequences of this possibility being exercised after the deadline.
Finally, the TSJ of Catalonia (decision 2535/2020), remarked that
“what article 119.3 LGT prohibits is to modify an option exercised once the declaration period has ended, but it does not oblige in any way to exercise the options within said term, which is an extensive interpretation carried out by the TEAC ”,
so that
“nor can it be presumed that [in the event of an extemporaneous presentation] it is decided for the total deferral of the negative tax bases due to the event of not being presented ( …) within the regulatory period, not even the content of your right to compensate the BINs is a tax option, strictly considered”.
As a conclusion, it is clear that we are facing a strictly legal issue that, having not been previously known in these terms by the Spanish Supreme Court, lacks a unification of criteria today in our case law, although we must not lose the hope that common sense will prevail and finally the taxpayer will be able to see that their right to offset BINs is maintained even if the submission of the declaration occurs after the deadline, although when it comes to the Spanish courts you never know …
