B Law & Tax
11 July 2023

Tax advisor: The Supreme Court rules on the basis for the penalty of art. 191 of the General Tax Act in related transactions

The Supreme Court has established jurisprudence through the recent ruling number 744/2023, issued on June 6. In this ruling, the Supreme Court has addressed the issue of the determination of the penalty for the infringement described in article 191 of the General Tax Act. This infringement refers to the omission of the total or partial payment of the tax debt within the established term, in the specific case of Personal Income Tax (IRPF) of a partner due to discrepancies in the valuation of related-party transactions, resulting in a simultaneous regularization for both the company and the partner. The appeal was centered on a question of housekeeping interest.

The question under analysis consists of determining, in light of the principles of proportionality, complete regularization and good administration, what should be the basis for calculating the tax penalty established in article 191 of the General Tax Act in cases of regularization of related-party transactions. In particular, it is a question of determining whether such basis should be the amount that the taxpayer failed to pay or, on the other hand, the difference between that amount and the amount paid by the related company in relation to the same income, when there are discrepancies in the valuation of such operations and income is imputed to the individual taxpayer that has already been declared by the related company. In this regard, the Supreme Court considers as a fundamental premise to resolve the controversy the existence of related transactions that are subject to regularization. Furthermore, it emphasizes that the qualification of such related-party transactions must be applied in a consistent and uniform manner to all the implications and consequences derived from the regularization carried out.

In cases of related transactions, two different subjects are involved who are also considered taxpayers in two different tax figures: the company and the partner. In this sense, the Supreme Court indicates that the basis of the penalty would correspond to the amount not paid in the self-assessment as a result of the commission of the infringement by the responsible subject (in this case, the partner as a taxpayer of Personal Income Tax). It is not possible to modify this quantitative amount, clearly established by the infringing rate, taking into consideration what happened in another self-assessment of another taxpayer and in relation to another tax concept.

The Supreme Court holds that article 191 of the General Tax Act is not based exclusively on the economic damage to the Treasury and considers other parameters to qualify tax penalties. The economic damage is only one of the criteria for graduation, together with other factors such as recidivism and non-compliance with obligations.

Based on this reasoning, the ruling establishes the following doctrine: in cases of related transactions where, due to discrepancies in the valuation of such transactions, a corporate income tax adjustment is made for the company, reimbursing it the corresponding amounts, and at the same time a personal income tax adjustment is made for the partner, imputing to him the income that was declared by the related company, the basis for calculating the tax penalty established in Article 191 of the General Tax Act should be the amount not paid in the self-assessment of the individual as a result of the commission of the infringement.

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