B Law & Tax
04 July 2023

Tax Advisor: The Supreme Court of Navarra determines that the appellant contradicts herself in asserting the statute of limitations to regularize, since she benefited from the reinvestment exemption without correcting it in her tax returns

The Supreme Court of Navarra, in its Ruling of February 14, 2023, examines when the non-compliance with the requirements to apply the deduction for reinvestment of extraordinary profits occurred. According to the Chamber, there is no statute of limitations for the action to regularize the situation once it has been established that the reinvestment was not complied with within the established period. This is because four years have not elapsed between the start of the inspection proceedings in 2020 and the deadline for carrying out the reinvestment, which was December 31, 2016.

However, the appellant does not deny the failure to carry out the reinvestment, but challenges the main premise that the exemption was valid in 2013. In that sense, it argues that it was never entitled to the exemption and that the proper thing to do would have been to regularize the 2013 corporate income tax return to eliminate such tax benefit. This is because the land was considered stock according to accounting criteria and the company already lacked activity at that time. However, this action is considered time-barred due to the fact that the legal period established for this purpose has elapsed.

However, the Chamber holds that this is not valid, since, as argued in the original judgment, the appellant’s interpretation is incorrect and goes against the doctrine of actos propios. The appellant cannot claim to voluntarily benefit from a tax exemption in her 2013 tax return, without subsequently correcting the alleged error in the nature of the assets in subsequent returns. Now, once the deadline to carry out the reinvestment has expired and without complying with this requirement, she cannot deny that she was entitled to the benefit and allege prescription of the action to regularize.

First, according to the doctrine cited above, the proper time to determine whether the land that was sold was considered fixed assets or inventory was at the time of the transaction, in 2013. What is really time-barred is the possibility of revising that statement. However, in addition to that, the appellant is going against her own actions by claiming that she was not entitled to the exemption.

It is not acceptable that he has benefited from this exemption without correcting it in the declarations subsequent to the 2013 tax year. It is just now, when the administration is carrying out a regularization, that it becomes aware of the alleged error it alleges.

The appellant did not correct the alleged error and treated the sale of land as an investment property instead of inventory, despite its accounting classification. These proper acts bind it and must be respected.

The Chamber emphasizes that the reasons for the exemption should not be reviewed, but rather to verify whether the requirements were met. Regarding the lack of economic activity, it is considered that real estate development for sale constitutes an economic activity, since it implies the organization of resources for that purpose, and the company had a sole Administrator who carried out activities.

The appellant argues that it did not have fixed assets such as means of production, did not have personnel and presented negative bases in the returns for fiscal years 2011 and 2012. In addition, it deregistered from the Economic Activities Tax in November 2010, which indicates the lack of self-management of productive means. However, the Court considers that the appellant has not demonstrated the error. Real estate development is recognized as an economic activity, and the land was acquired for that purpose. In addition, the company had a sole administrator who carried out actions related to the urbanization of the land, filing corresponding documents with the competent city council.

Based on the foregoing, it is concluded that the appeal must be rejected and the appealed judgment confirmed. There was no statute of limitations of the action to regularize the tax return, since the non-compliance with the conditions for the materialization of the reinvestment exemption was ascertained. In addition, the existence of economic activity and the presence of assets related to such activity were adequately demonstrated.

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