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When discussing the increase in the tax burden on companies, there is one key aspect that often goes unnoticed, and that is the very high burden of formal obligations that companies currently bear, and, in this case, family businesses. For years, the government has shifted a significant portion of its management and collection activities onto taxpayers, which means they have to bear personnel costs (and external consulting fees) that can rightly be described as excessive.
The companies in our business fabric, mostly made up of family businesses, thus have to file a multitude of information returns, withhold taxes from their employees and professionals, self-assess and pay their taxes on time, withhold amounts from delinquent suppliers and pay them into the state coffers... and, of course, any oversight results in the automatic imposition of penalties.
This increase in formal obligations becomes even more significant when we consider that the structure of family businesses has also become more complex, as they have had to adapt to current economic and financial realities. A clear example of this is the creation of corporate structures dominated by a holding company, structures through which the family business can grow and diversify its activities, but also take on new tax obligations, including the need to comply with regulations on related-party transactions or transfer pricing.
Thus, it is common for family businesses today to be organized through a group of companies, with one or more of them acquiring and consolidating real estate assets, which can be transferred and, in some cases, conveyed to other entities within the group. Such transactions must comply with transfer pricing regulations and, in particular, be carried out under market conditions (and justify this by submitting the corresponding information returns and preparing the necessary supporting documents for such valuation).
However, while taxpayers are required to comply with all legally imposed formal obligations, the tax authorities must also comply with established procedures and, if they fail to do so, accept the consequences.
Background
All of the above is relevant to a recent ruling by the National Court (Ruling of November 6, 2024, appeal 564/2020) in which we succeeded in overturning a valuation made by the Tax Inspectorate with regard to corporate income tax on the grounds that it did not comply with the formal and procedural requirements of the law.
The case is as follows: an industrial warehouse is sold between two companies belonging to the same family business group. A few years later, the transaction is reviewed by the Tax Inspectorate, which considers that the transfer price (€480,000) is well below the market value of the transferred asset and, consequently, issues a settlement increasing the price (to almost €2 million) and, therefore, the income to be declared in corporate income tax by the selling company.
To support the price it considered correct, the Tax Inspectorate provided a report issued by the Technical Office of the Special Delegation of Catalonia that supported the aforementioned value. However, it turns out that this valuation was not carried out with the guarantees required by law: reports that were not delivered to the company were invoked, unjustified valuation coefficients were used, and, above all, the expert did not visit the property. Conclusion: the valuation does not comply with the regulations.
The court's decision: annulment of the settlement
For the National Court, the correct implementation of the comparable uncontrolled price method in the field of transfer pricing regulations (Article 16.3.a) TRLIS, currently Article 18.4.a) LIS—requires, in the event that it is based on an expert opinion under Article 57 of the General Tax Law, adequate justification for the valuation of the property, and such justification generally requires a visual inspection of the property, especially when, as in this case, the uniqueness of its use is specifically recognized. In addition, it is necessary to provide supporting documentation for the comparables used and to justify the correction coefficient used with respect to sales used as comparables, which, moreover, did not correspond to sales but to offered prices.
It is also interesting to note that the Court does not order the retroactive application of proceedings, but rather directly annuls the assessment and orders a new one to be issued, accepting as valid a valuation provided by the taxpayer during the proceedings. This aspect is not trivial, since the opposite would have meant that the taxpayer (as we say, a company belonging to a family-owned group) would have had to bear either the tax cost of a new assessment or the costs of initiating a new appeal process, as is almost always the case, with an uncertain outcome.
This ruling thus incorporates into corporate income tax a doctrine already established in other taxes, such as inheritance tax or property transfer tax, which has repeatedly required a visit by an expert to the property in question, with the addition, in our opinion, of the very interesting consequence that the assessment is null and void, and the Tax Inspectorate cannot therefore restart the procedure.
In short, we stand by what we have said: the Administration must also scrupulously comply with its legally established obligations, whether formal or material, and, if it fails to do so, submit to the final verdict of the courts at the request of taxpayers. Because the same law that supports the imposition of penalties also protects us from arbitrariness.
PS: To paraphrase Cicero: we are free because we are slaves to the law.
Rafael Granados – Family Business Group
Director in the tax area
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