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The Spanish Supreme Court in its recent Ruling from the Contentious-Administrative Chamber of September 23rd, 2024 (Rec. 86/2023) reinforces its doctrine on the differences between the figures of qualification, simulation and conflict in the application of the rule, underlining that the Administration cannot choose with total freedom, which of these mechanisms to use to regularize the tax situation of the taxpayers. In this ruling, the Supreme Court again addresses the power of qualification, simulation and conflict in the application of the regulations, completing its jurisprudence on the limits of each of these figures. This ruling reiterates the position expressed in previous rulings of July 2, 2020, July 22, 2020 and February 23, 2023. In this ruling, the Court emphasizes that the Tax Administration cannot arbitrarily resort to any of these mechanisms to regularize the tax situation of taxpayers. It must, instead, opt for the figure that is appropriate according to the specific circumstances of each case, respecting the regulatory scheme of the General Tax Act.
In the case in question, the Tax Administration, in the context of an inspection procedure, used the figure of qualification and, consequently, completely dismissed the legal business between the parties and the services provided by both parties. However, the Supreme Court considers that this figure was not the most appropriate for the specific case, since the qualification is a process by which it is determined whether a fact, act or business conforms to the normative hypothesis established by law, based exclusively on its legal nature and without taking into account the form or denomination that the parties have given it. In other words, it is an operation of subsumption of the fact in the norm, which must be based strictly on legal criteria. Having not limited itself to qualifying a legal act or business, but having ignored it completely, the Administration should have resorted to other figures provided for in the General Tax Act. However, the Supreme Court opted to annul the administrative acts instead of specifying which of these figures would have been the most appropriate.
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