Tax audits: Fines of up to 600,000 euros for employers for not disclosing requested information

tax inspections fines

Those who carry out economic activities and deny accounting information in a tax inspection could be liable to pay a fine of up to 600,000 euros, the Constitutional Court (TC) has backed, considering that there is no "patent and excessive imbalance".

It has been decided, by a large majority, to dismiss the question of unconstitutionality raised by the second section of the Administrative Chamber of the Supreme Court with respect to article 203.6 b) 1 of the General Tax Law (LGT), amended in 2012 to prevent and intensify the fight against tax fraud.

The question states that "the tax offence of resisting, obstructing, excusing or refusing the actions of the tax administration", therefore, a person who carries out economic activities and who is being inspected will be sanctioned with a fine of 2% of the figure corresponding to the last financial year ended at the time, "with a minimum of 20,000 and a maximum of 600,000 euros".

It is detailed that this sanction applies exclusively to conduct obstructing "the provision or examination of accounting books, tax records, files, programmes, operating and control systems" or consisting of the failure to comply with the duty to "facilitate entry or stay on farms and premises" or "the recognition of elements or installations".

The Supreme Court stated that "this rule could be incompatible with the principle of proportionality of sanctions, due both to the excessively afflictive nature of the sanction and to the fact that it was laid down in the law itself". Therefore, it did not question the constitutionality of the type of offence itself, it added.

The judgment concludes that this article does not infringe the principle of proportionality of penalties because it leaves the sanctioning body some leeway to adjust the fine according to the conduct of the offender.

"It is not possible to deduce from Article 25.1 of the Spanish Constitution (principle of legality) a requirement that the legislator should in any case reserve margins of sanction graduation to the bodies responsible for applying administrative sanctions, whether it be the administration itself or the contentious-administrative judge who reviews its actions", the ruling states.

To this it is added that "it takes sufficient account, in its own legal configuration, of the circumstances that the legislator - in a way that cannot be described as unreasonable or arbitrary - has considered relevant for the quantification of the penalty", such as the seriousness of the conduct, how the offence is committed and "its significance for the correct verification of tax obligations".

The ruling emphasises that the penalty applies only to cases where the information has not been provided by the offender to the tax inspectorate as company accounts.

A very excessive sanction?

The Constitutional Court observes that the infringement is not only negligent of a tax obligation but also affects legal assets of constitutional rank, in this case, "the effective functioning of tax inspection, as an instrument for the correct and fair application of the tax system". 

It concludes that, "despite the severity of the legally envisaged sanction, there is no patent and excessive or unreasonable imbalance between the sanction and the purpose of the rule, nor is there any incoherence or excess in relation to the systematic nature of the LGT itself".

"The way in which the penalty is calculated cannot be described as unreasonable and, furthermore, certain corrective elements of the resulting fine are established, by setting a maximum legal ceiling on the amount of the fine and allowing it to be reduced in the event of voluntary cooperation by the offender before the administrative procedure is completed," he said.

Therefore, it is established that "it cannot be observed that the sanction foreseen in art. 203.6 b) 1º LGT involves a patent useless waste of coercion that undermines the elementary principles of justice inherent to the dignity of the person and the Rule of Law".

Individual votes between judges

However, some magistrates have announced dissenting opinions on the understanding that the scope of the question of unconstitutionality raised by the Third Chamber of the Supreme Court does not only question the maximum limit of the sanction, but also the whole of the precept because there are doubts as to the proportionality when applying the sanction, in view of the technique used by the precept of the LGT.

In its particular judgement it is stated that "this article does not keep the required proportion between the nature and seriousness of the offence and the sanction attached to it, given that a notoriously more serious sanction is provided for non-compliance with formal tax obligations than for non-compliance with the substantive tax obligation".


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