B Law & Tax
08 August 2023

Tax advisor: The TEAR of Catalonia violates the “reformatio in peius” principle, harming the claimants, especially the entity that did not challenge certain liquidation agreements

The High Court of Justice of Catalonia examines whether the principle of “reformatio in peius” has been violated due to the decision issued by the Regional Economic-Administrative Court of Catalonia (TEAR). The plaintiff argues that the TEAR’s decision is inconsistent in annulling the entity’s corporate income tax settlement in relation to the eliminated expenses. This is because the settlement in question was not subject to administrative appeal, but rather the taxpayer and partner of the entity accepted the liquidation, requesting the inclusion of the eliminated expenses in its return by application of the principle of full regularization.

According to this principle, if the expenses corresponding to the activity called “XTAG” were eliminated because they were unduly attributed to the entity instead of the partner, they should be deducted from the total income of the partner for the activities of advocacy and “XTAG” in his personal income tax return.

The TSJ of Catalonia concludes that the TEAR should not have annulled the elimination of the expenses attributable to the “XTAG” activity since it was not subject to appeal and was accepted by all the interested parties. Moreover, by the logic of the full regularization, these expenses should be deducted from the partner’s income in his personal income tax returns for the activities of advocacy and “XTAG”. Therefore, the TEAR’s decision is annulled in part to maintain the elimination of the expenses attributable to the “XTAG” activity and to provide for their deduction from the partner’s income in his personal income tax regularization.

B Law & Tax International Tax & Legal Advisors.

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