A recent judgment by the Spanish Supreme Court has established case law on an issue that may be very relevant to audits of reported values in transfers of tourist-hotel properties. In light of the new case law, assessments already issued in concluded reported value audit proceedings should be checked in order to review their potential time-barring.
The Supreme Court has recently published its judgment 1197/2024, of March 1, in which it establishes case law that may be very relevant for reported value audit proceedings conducted by the tax authorities. This is a highly relevant issue, for example, where hotels and tourist establishments are transferred, given the high value of such assets.
An audit of reported values is a proceeding in which the tax authorities audit the value reported by the taxpayer in respect of income, products, assets and other elements giving rise to the tax obligation. It is a proceeding commonly used by the autonomous community authorities to audit the values reported by taxpayers for the purposes of transfer and stamp tax, net worth tax or inheritance and gift tax.
The General Taxation Law provides the tax authorities with several ways to conduct audits of reported values, one of which is an opinion issued by the tax authorities’ own experts.
The maximum time period for the proceeding is 6 months. If this period ends without a decision being notified to the taxpayer, the proceeding becomes time-barred, meaning that the authorities may no longer issue any decision. However, the tax authorities may commence another reported value audit proceeding, but only if their right to determine the tax debt through an assessment has not become statute-barred (and at all times subject to the limit that prevents a reformatio in peius).
In these types of proceedings, it is very common for the tax authorities, before notifying the taxpayer of the start of the proceeding, to have already tasked their experts with preparing a valuation report and to order the start of the proceeding precisely as a result of that report.
This approach by the authorities means that it is very difficult for reported value audit proceedings to become time-barred precisely because, until now, it had always been considered that those prior valuation reports that are prepared by the tax authorities’ experts and that serve as the basis for subsequently commencing a reported values audit proceeding constitute internal acts by the tax authorities which are not taken into account when calculating the maximum 6-month period mentioned above.
In March 2023 the Supreme Court already issued three judgments (numbered 295/2023, 296/2023 and 298/2023) in which it rendered null and void some assessments issued in reported value audit proceedings that were time-barred because the maximum 6-month time period had been exceeded. In the Supreme Court’s view, when calculating this time period the start date should have been considered to be, not the day on which the taxpayer was notified, but rather the day on which the tax authorities (in this case, of Asturias) requested an expert valuation report from the Cantabria tax authorities, which served as the basis for the start of the subsequent reported value audit proceeding.
However, the court qualified its own case law in these judgments. Specifically, it affirmed that its view cannot be mimetically applied to the other more frequent cases in which the tax authorities’ actions take place internally, such as when the tax authorities task their own experts with preparing an expert valuation report before commencing a reported values audit proceeding.
That said, in its recent judgment 1197/2024 just made available to us, the Supreme Court analyzed one of these cases in which that prior action of preparing the valuation report took place internally within the same tax authority, and in its judgment it established the following case law: “From the time that the tax authorities request a valuation report through one of their units, where the expert who issues the report becomes involved, actions are taken to audit the value of the real estate assets and, consequently, the reported value audit proceeding has commenced, and there can be no deferral of the commencing effect, when calculating the nontollable time period of the proceeding, to the date of another decision, this one formal, on commencement and the proposed assessment.”
In view of this Supreme Court case law, when the tax authorities give notice of a reported values audit proceeding for which they have relied on a report that their own experts have prepared beforehand, the date that should be taken into account to verify whether the proceeding’s maximum 6-month time period has been exceeded is the day on which the case file shows that the tax authorities tasked their experts with preparing that prior valuation report or, at least, the date on which the case file shows that tax authorities’ experts prepared their report.
If we take into account that the time that may elapse between the day on which the tax authorities’ expert prepares his or her valuation report and the day on which the taxpayer is notified of the start of the reported values audit proceeding, can in practice be weeks and sometimes months, these proceedings are more likely in many cases to become time-barred.
It should be recalled that the Supreme Court’s case law holds that (i) on the one hand, the time-barring of administrative proceedings occurs by operation of law, due to the simple expiration of the time period, without it having to be declared; and that (ii) on the other hand, any decision issued within a time-barred administrative proceeding is null and void as a matter of law.
This new case law by the Supreme Court is undoubtedly of great interest in audits of reported values relating to transfers of hotels and tourist establishments that may be taking place now or will take place in the future. But it is also highly recommendable to check assessments already issued in concluded reported values audit proceedings in order to review their possible time-barring in light of this new case law, since it may make it recommendable to claim a refund of incorrectly paid tax.
