BackAccording to the principles of the General Theory of Law, when a contract is entered into for a different purpose than the one normally attributed to it, a defect in the cause may arise. This situation can be divided into two types of contracts: those with a false cause, in which the parties do not pursue the apparent purpose of the contract, and those with an illicit cause, in which the parties pursue objectives contrary to the law. In the latter case, it may happen that fraud of law or conflict in the application of the rule overlap with simulation, which makes it difficult to distinguish between them and makes their classification as administrative or criminal offense depend on the interpretation and qualification made by the tax enforcement bodies and the courts, in each specific case.
Simulation is a phenomenon that involves discovering the true cause behind a contract, which may differ from the appearance that the contract suggests. Therefore, it cannot be said that there is simulation without a concealment of the facts behind it.
Following an actual case of capital transfers between a company in Luxembourg and its Spanish subsidiary, a judgment was handed down confirming the imposition of penalties, based on the case law of the Supreme Court which holds that simulation implies an intentional concealment of reality. Relative simulation is a form of concealment in which the appearance of an unintended fictitious business is created to cover up another business that is carried out in violation of the law. Since there is malice in this type of situation, it is not possible to allege lack of guilt or the existence of a reasonable interpretation of the rule.
In this particular case, the National Audience properly applied the figure of simulation, in line with the current case law of the Supreme Court. According to this case law, the essence of simulation lies in the concealment of the reality of the business, so that real legal acts and transactions based on business rationality cannot be considered as simulated, even if they have a purpose of tax advantage. The economic reason for the transaction is a matter of motive and not cause, and is irrelevant for simulation.
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