Method Versus Content In Tax Law. Two Recent Rulings Relate to Repayment of VAT And Compensation of Losses In Corporate Tax

23 May 2008

Two recent rulings have underlined the prevalence of taxpayers’ rights to the manner in which tax settlements are executed.

The Catalonian Supreme Court of Justice ruling of 15.03.2007 examined a company claim against the settlement carried out by the tax administration as a result of the modification in recent years of the taxable bases of the company.

In this case the company had wrongly recorded the losses in the self assessment of 1994, which was not rectified by the company until the self assessment in 1998 in which the correct amounts were indicated, being greater than initially indicated. The administration did not accept the correction of the losses made in 1998 (meaning that the balance of losses was much less than that indicated by the company), on the grounds that they were not expressed though the expected procedure, which is to present corrected self assessment of each financial year in which losses are modified.

In the ruling, the court reasons that compensation of the losses is a taxpayer’s right and that it does not believe the posterior presentation of a self-assessment where a different distribution of the losses is established to go against previous conduct, given that its is within the law, which was never the object of discussion here. The argument of protecting legal security was not accepted by the court. Finally, the ruling cancels the administrative act in which the administration does not accept the new distribution of the losses.

In a similar way, the ruling of the Supreme Court of 4.07.2007 considers the appeal of a company which was denied the possibility of requesting a refund of the VAT over the four years in which compensation for of the excess VAT paid could be asserted.

In this case the administration had been denied the right to receive a VAT refund for the reason that they had not presented it correctly in the corresponding form. According to the administration, by not requesting it the right to the refund was not exercised, meaning that the taxpayer could not go against its own actions.

In its ruling the court establishes that the use of standardised forms aims to facilitate the work of the tax administration, but under no circumstances should they provoke the loss of civil rights like the deduction of paid VAT, with VAT designed to be a neutral tax for companies. To limit this right is to limit the merit of the nature of this tax. The ruling concludes that the taxpayer has the right to the VAT refund, notwithstanding the way in which it was declared. To not accept this would result in an unjust enrichment for the administration.

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