B Law & Tax
14 June 2023

Tax advisor: The documentation provided by a company does not represent a complete idea of the monetary flow that would justify the bank balance detected by the Inspection as previously hoarded money, and not as undeclared income in the Corporate Tax

In its ruling of February 17, 2023, the High Court of Justice of Andalusia (TSJA) examines whether it is appropriate to increase the tax base due to the discovery of a hidden asset. In particular, it deals with cash income that the Inspection presumes to correspond to undeclared income and that must be considered as an unjustified capital gain.

Highlighting relevant aspects, such as the unusual practice of making cash receipts for transactions that are normally made by bank transfer due to their security and amount, the lack of reliable evidence in the Inspectorate’s databases that the president of the company had access to significant sums in cash, and the absence of documents supporting a credit relationship between the president and the company, where the latter financed the president, the Inspectorate concludes that no supporting documentation has been presented for the origin of the funds deposited in the bank account.

The lack of justification leads to the presumption that the funds come from undeclared income, different from those regularized voluntarily before the Administration requires them, which is argued by the plaintiff.

The Chamber considers that the justification cannot be based solely on the accounting and bank statements, since these only show the date, the amount of the income and the concept assigned by those who make them, but do not reveal the circumstances behind the transactions in the bank account. Like the Inspectorate and Regional Economic-Administrative Court of Andalusia, the TSJA finds that there is a lack of supporting documents to substantiate the credit relationship between the company and the president, as the scarcity of authentic documents prevents tracing the flow of money from the cash balance generated by sales to customers to evidence that the borrower physically held the funds when reimbursing the lender.

In short, the documents submitted by the appellant do not provide a complete picture of the alleged money flow that would explain that the detected bank balance originated from previously accumulated funds from tax regularized sales to third parties.

In this sense, the appellant is not required to carry an excessive burden of proof, but simply, instead of being satisfied with a simple explanation, to present to the Tribunal documentary evidence that would have clarified the existence and liquidation of the debt contracted by the president. Without such evidence, the assessment made by the Inspectorate cannot be considered unreasonable or arbitrary.

Finally, in relation to the sanctioning procedure, the Chamber confirms the sanction imposed, since the omission of certain income in the taxable base of the tax constitutes an intentional fault, making it difficult to accept excuses based on the good faith of the taxpaying entity, to a greater or lesser extent.

B Law & Tax International Tax & Legal Advisors.

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