In its ruling of July 12, 2023, the Superior Court of Justice of Madrid examines whether the challenged decision of the Regional Economic-Administrative Court of Madrid (TEAR) violates the principle of congruence and, in that context, assesses the implications of possible incongruity.
The court argues that TEAR bases its resolution on issues related to the company’s accounting, specifically on how the acquisition of an exploitation right of a piece of land was accounted for. It notes that this matter was not addressed in the requirement, the proposed settlement, the settlement itself, or in the resolution of the appeal filed by the managing office.
Therefore, TEAR’s decision introduced arguments that had not been raised by the Administration in the aforementioned resolutions. The plaintiff did not have the opportunity to present arguments and evidence to the tax authority in response to these new points.
Furthermore, by focusing its resolution on the accounting treatment of the acquisition of an exploitation right over land, TEAR did not consider the arguments presented in the settlement and the resolution of the appeal filed. This resulted in a lack of congruence and a violation of applicable provisions. If TEAR deemed it necessary to examine the accounting, it could have annulled the settlement and allowed an inspection process, as the limited verification procedure was not suitable for analyzing the accounting. However, in any case, TEAR should have evaluated the issues raised in the settlement and the resolution of the appeal, for which the plaintiff presented arguments and evidence. By failing to do so, as acknowledged by the State Attorney in response to the lawsuit, the annulment of the challenged resolution is appropriate.
However, the annulment of TEAR’s resolution does not affect the validity of the tax assessment. In the limited verification procedure, the taxpayer’s accounting was not examined, and no accounting documents were requested. Therefore, the taxpayer’s claim that TEAR’s resolution is based on accounting does not imply that the limited verification procedure exceeded its scope, but rather that TEAR’s resolution is incongruent. This means that the annulment of TEAR’s resolution does not result in the annulment of the tax assessment resulting from the limited verification procedure.
The consequence of the annulment of TEAR’s resolution is the retroaction of the proceedings to the moment when the motivational defect that led to the incongruity was committed. The taxpayer does not request the annulment of the tax assessment in its main claim, as the arguments related to the alleged appropriateness of the loss declared in the self-assessment due to the impairment of tangible fixed assets are presented in a subsidiary manner. Therefore, it is not appropriate to analyze the legality of the tax assessment in this judgment, as doing so would be incongruent with the annulment of TEAR’s resolution.
This means that the arguments of the parties regarding the validity of the tax assessment resulting from the resolution of the appeal should not be analyzed. If TEAR reaches the conclusion that the disputed issue cannot be resolved without examining the accounting and deems that an inspection procedure was required, then, if this Court were to assess the legality of the mentioned tax assessment, it would prevent TEAR from making its own considerations on this matter.
Therefore, the administrative contentious appeal is partially accepted, declaring that the challenged resolution of the Regional Economic-Administrative Tribunal of Madrid does not comply with the law, annulling and revoking it. This means that the proceedings must be rolled back to the moment before the issuance of TEAR’s resolution, and it is not necessary to consider the arguments presented in a subsidiary manner.
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