Penalised for a mistake: annulling the penalty for lack of fault

The case, in five lines

What is brought

Challenge to the penalty decision for lack of reasoning on fault and for the due diligence recognised in article 179.2 LGT, with the lapse of the file as a separate ground.

Before which court

The office that imposed the penalty, if the reposición appeal is chosen, or the TEAR (the regional tax tribunal), and afterwards the contencioso-administrativo courts.

Deadline

Fifteen days to answer the proposal, under articles 210.4 and 210.5 LGT. One month from the day after notification of the decision to bring the claim, under article 235.1 LGT, and two months for court proceedings from the end of the administrative route, under article 46.1 LJCA.

Who can bring it

The person or entity identified as the offender in the decision. Where the penalty has been derived to a liable person, that person may challenge it too under article 174.5 LGT.

Financial risk

Challenging the underlying assessment triggers recovery of the acceptance reduction under article 188.2.b) LGT, and appealing after paying forfeits the 40 per cent reduction of article 188.3 LGT. In later court proceedings costs may be awarded against you.

There is no infringement without intent or fault, and that must be proved

Article 183.1 LGT defines tax infringements as intentional or negligent acts or omissions, with any degree of negligence, that are defined and penalised as such. The fact that the tax was wrongly calculated does not settle the matter: fault is a separate requirement, distinct from the assessment itself, and it must be proved and explained in the decision imposing the penalty.

Article 211.3 LGT states what the decision must contain: the findings of fact, the assessment of the evidence taken, the determination of the infringement, the identification of the offender and the quantification of the penalty with its grading criteria. A decision that replaces all of that with general formulas about the duty to know the law does not comply, and that is the ground that annuls most penalties.

A reasonable interpretation of the rule excludes liability

Article 179.2.d) LGT excludes liability where the necessary diligence was exercised, and explains that it is taken to have been exercised where the taxpayer acted on a reasonable interpretation of the rule, or followed the criteria published by the tax authority in the writings referred to in articles 86 and 87 LGT. You do not need to be right on the substance: it is enough that your reading was defensible.

The same provision goes further: no liability is required either where the taxpayer follows the criteria stated by the authority when answering a query raised by another taxpayer, provided there is a substantial identity of circumstances allowing those criteria to apply and they have not been changed. That is why the file is accompanied by the specific answers and publications on which the return was based.

There is an express limit worth knowing. Article 179.2 itself warns that, in the cases of article 206 bis LGT, due diligence and reasonable interpretation of the rule cannot be taken to exist unless the contrary is proved. Outside that ground, reasonable interpretation remains the most effective defence against penalties imposed for a mere difference of criteria.

If the failure comes from the agency's own software, the law rules the penalty out

Article 179.2.e) LGT excludes liability where the acts or omissions are attributable to a technical failure in the assistance software provided by the tax authority for meeting tax obligations. It is a self standing ground, rarely argued and very useful where the error arises from the return assistant itself or from tax data loaded automatically into the return.

To sustain it you must keep the trail: screenshots of the assistant, the return file generated, the tax data downloaded and the date of the download. Article 179.3 LGT also helps, since it excludes liability for infringements committed through incorrect returns where the taxpayer voluntarily regularises or corrects the position before any action by the authority.

The penalty file lapses after six months and cannot be reopened

Article 211.2 LGT requires the penalty proceedings to be completed within a maximum of six months from notification of the communication starting it, and treats it as completed on the date the decision is notified. Article 211.4 LGT adds the consequence: once that period expires without an express decision being notified, the file lapses, the actions are shelved, and no new penalty proceedings may be started.

That is why the first thing done with a penalty decision is to measure two dates: notification of the start and notification of the decision. If more than six months separate them, the penalty falls entirely, without arguing the substance. The same article allows that period to be extended where the inspection it stems from involves one of the circumstances of article 150.5 LGT, which is checked as well.

The penalty can be challenged without losing the acceptance reduction

Article 212.2 LGT contains a rule that decides many strategies: the penalty may be challenged without losing the acceptance reduction of article 188.1.b) LGT, provided the underlying assessment is not challenged. In other words, you may accept the assessment and fight only the penalty, keeping the 30 per cent discount. Article 188.2.b) LGT is the reverse: if the assessment is challenged, that reduction is demanded back on mere notification.

The additional 40 per cent reduction of article 188.3 LGT requires two cumulative conditions: paying the remainder within the period of article 62.2 LGT or under a deferral granted with security, and lodging no appeal or claim against the assessment or the penalty. Whoever pays for peace of mind and appeals afterwards loses it. Article 188.4 LGT at least avoids having to challenge that demand separately.

Challenging in time suspends the penalty automatically and without security

Article 212.3.a) LGT provides that lodging an administrative appeal or claim against a penalty in time and proper form automatically suspends its enforcement during the voluntary period, without any need to provide security, until it is final in the administrative route. It is an advantage the tax debt itself does not enjoy, and it changes the financial pressure of the case entirely.

Subparagraph b) of the same article adds that no late payment interest is charged for the time until the voluntary payment period opened by the decision closing the administrative route expires. That provision does not, however, suspend the derived tax debt or the liabilities for payment of debts under article 42.2 LGT, as its own wording states, which matters when several pieces are in play.

How we run the case, step by step

1. 1

   Measuring the dates before anything else

   We check the notification starting the file and the notification of the decision to see whether the six months of article 211.2 LGT have passed. If they have, article 211.4 LGT imposes lapse, shelving of the actions and a bar on opening a new penalty proceedings.

2. 2

   Submissions within fifteen days against the proposal

   Articles 210.4 and 210.5 LGT allow fifteen days to make submissions and produce documents with the file available. That is where the published criteria, answers and calculations supporting the reasonable interpretation of article 179.2.d) LGT are introduced.

3. 3

   Deciding whether to accept the assessment and fight only the penalty

   We work out what suits the case with article 212.2 LGT in hand, which allows the penalty to be challenged while keeping the acceptance reduction if the assessment is not challenged, and with article 188.3 LGT, whose 40 per cent discount disappears on any appeal.

4. 4

   Challenge within one month

   The reposición appeal or the TEAR claim is lodged within the month of article 235.1 LGT, attacking the reasoning on fault required by articles 183.1 and 211.3 LGT. Lodging in time suspends the penalty without security under article 212.3 LGT.

5. 5

   Court proceedings if the decision upholds the penalty

   Article 46.1 LJCA opens two months from notification of the decision closing the administrative route. There the absence of the subjective element is pressed again and an interim measure is requested so the penalty is not enforced during the case.

The law that applies

• Art. 179.2 LGT. Excludes liability for an infringement where there is no capacity to act, force majeure, a dissenting vote in a collective decision, or the necessary diligence, which is taken to exist with a reasonable interpretation of the rule or by following the authority's criteria, or where the failure is attributable to a technical defect in its assistance software. BOE-A-2003-23186
• Art. 183 LGT. Defines tax infringements as intentional or negligent acts or omissions, with any degree of negligence, defined and penalised by statute, and classifies them as minor, serious and very serious. BOE-A-2003-23186
• Art. 210 LGT. Governs the conduct of the penalty file: data obtained in other proceedings must be formally incorporated before the proposal, the proposal must set out with reasons the facts, their legal classification and the grading criteria, and fifteen days are given for submissions with the file made available. BOE-A-2003-23186
• Art. 211 LGT. Sets six months from the notification starting the file as the maximum period to complete the penalty proceedings, describes the mandatory content of the express decision, and states that expiry of that period without a notified decision causes the file to lapse, the actions to be shelved and any new penalty proceedings to be barred. BOE-A-2003-23186
• Art. 188 LGT. Sets the reductions of penalties, 65 per cent for agreed inspection reports and 30 per cent for acceptance, plus a further 40 per cent conditioned on timely payment and on lodging no appeal, and governs when the reduced amount is recovered. BOE-A-2003-23186
• Art. 212 LGT. Allows the penalty to be challenged separately, preserves the acceptance reduction where the underlying assessment is not challenged, and automatically suspends enforcement of the penalty during the voluntary period without security until it is final in the administrative route, with no interest charged meanwhile. BOE-A-2003-23186

Each article checked against the consolidated text published in the BOE (the Spanish official gazette).

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