The tax office holds you liable for hiding another's assets

The case, in five lines

What is brought

Challenge to the joint liability decision under article 42.2.a) LGT, attacking the element of intent and the overall scope of the liability.

Before which court

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

Deadline

One month from the day after notification of the decision, under article 235.1 LGT. The liability itself, by contrast, may be declared at any time after the main debtor's assessment or self-assessment, under article 174.1 LGT.

Who can bring it

The person declared jointly liable: the buyer of the asset, the relative, the shareholder or the company appearing as recipient of the transfer. Each one challenges their own decision.

Financial risk

The liability covers the outstanding debt and, where applicable, penalties, the enforcement surcharge and late payment interest, capped at the value of what could have been seized. If the court claim is dismissed, costs may be awarded against you.

The law requires a purpose of frustrating collection, a sale alone is not enough

Article 42.2.a) LGT declares jointly liable those who cause or collaborate in the concealment or transfer of the debtor's assets or rights with the purpose of frustrating the action of the tax authority. That last phrase is not decoration: it is an element of the ground itself. Without a proven purpose, the transaction may be open to challenge by other routes, but it will not sustain a liability decision.

The defence is built on the economic reality of the transaction. We prove the price, where the money came from, whether there was a traceable bank transfer, whether the use of the asset changed, and who has paid the taxes and utility bills since. Where the purchase has its own cause and a real price, the decision loses the element of intent and what the office calls concealment is simply a contract.

Timing also matters. A sale signed before any audit activity is not the same as one signed the week after a seizure order or an inspection report. That is why the full chronology of the main debtor's file is reconstructed and matched against the dates of the transaction, because temporal coincidence is the indicator supporting almost every one of these decisions.

Your liability has a ceiling: the value of what could have been seized

The opening words of article 42.2 LGT cap the liability at the value of the assets or rights that the tax authority could have seized or sold. That ceiling is a quantitative defence to be raised in every case, because many decisions derive the main debtor's entire debt without showing that the transferred asset was worth that much, or that it could have been seized in full.

In practice we dispute the value of the asset at the date of transfer, the charges over it, the outstanding mortgage and the share belonging to other co-owners. A property worth 150,000 euros with 90,000 of mortgage still owed and an undivided half belonging to someone else does not allow 90,000 euros of debt to be demanded. Each of those reductions is proved with documents, not with assertions.

Here you do not dispute the assessments, you dispute the overall scope

The second paragraph of article 174.5 LGT marks the decisive difference from other liability decisions: in the cases of article 42.2 the assessments covered by the ground of liability may not be challenged, only the overall scope of the liability. Anyone who builds a challenge by disputing the main debtor's tax bill, item by item, will see that ground rejected.

The pleading is therefore organised differently. It attacks the ground of liability, that is, the concealment and its purpose, and it attacks the scope: what was valued, how it was valued, and how far the statutory ceiling reaches. The same paragraph adds that in these cases article 212.3 LGT does not apply, which shapes how suspension has to be approached.

The decision drags in penalties, surcharge and interest, without the usual reductions

Article 42.2 LGT extends the liability to payment of the outstanding debt and, where applicable, of tax penalties, including the enforcement period surcharge and late payment interest where they apply. That accumulation explains why the amount demanded often exceeds what the person concerned thought was at stake, and it is one reason to review the breakdown item by item before replying.

In addition, article 41.4 LGT closes the door to discounts: its reductions do not apply to liability for payment of debts under article 42.2 LGT. In other words, there is no cheap acceptance here of the kind that tempts people to sign in other liability cases. The only sensible route is to argue well and in time, with the main debtor's full file in front of you.

One month to claim, and before that the hearing almost nobody uses

Article 174.3 LGT recognises that the prior hearing given to liable persons does not exclude the right to make submissions beforehand and to produce the documents they consider necessary. It is the cheapest moment in the case: providing proof of the price and its origin before the decision is issued often prevents it from being issued at all, or at least leaves the file ready for the challenge.

If the decision is issued, article 235.1 LGT gives one month from the day after notification to lodge the economic-administrative claim, and article 174.4 LGT requires the notification to state the means of challenge, the body and the time limit. That month is a strict deadline and is not recovered by explaining how unfair the decision feels.

How we run the case, step by step

1. 1

   Rebuilding the transaction with documents

   We gather the deed, the payment records, the origin of the funds, the valuation and the charges over the asset. With that we measure whether the element required by article 42.2.a) LGT exists, the purpose of frustrating the authority, or whether the transaction has its own cause.

2. 2

   Submissions before the decision is issued

   If a proposal is still open, we use the right under article 174.3 LGT to make submissions and produce documents before the hearing. That is the moment when proof of the price and of the buyer's own means has the greatest chance of stopping the file.

3. 3

   Challenge within one month against the decision

   Within the month of article 235.1 LGT we lodge the reposición appeal or the claim before the TEAR. The pleading attacks the ground of liability and the overall scope, which is what the second paragraph of article 174.5 LGT permits in article 42.2 cases.

4. 4

   Work on the amount and on security

   We quantify the ceiling of article 42.2 LGT by deducting the mortgage, charges and the shares of other co-owners, and we address security to avoid collection while the dispute runs, bearing in mind that article 174.5 LGT excludes the application of article 212.3 LGT here.

5. 5

   Court proceedings if the TEAR does not annul it

   With the decision in hand we go to the contencioso-administrativo courts, where the absence of the element of intent is argued again, an interim suspension is requested, and expert evidence is produced on the value of the asset at the date of the transfer.

The law that applies

• Art. 42.2.a) LGT. Makes jointly liable for the outstanding debt and, where applicable, the penalties, including the enforcement period surcharge and late payment interest, anyone who causes or collaborates in concealing or transferring the debtor's assets with the purpose of frustrating the tax authority, up to the value of what could have been seized or sold. BOE-A-2003-23186
• Art. 41.4 LGT. States that liability does not extend to penalties save for statutory exceptions, governs the reduction where the liable person accepts the proposal and its full recovery if he later appeals, and expressly excludes those reductions in cases of liability for payment of debts under article 42.2 LGT. BOE-A-2003-23186
• Art. 174 LGT. Allows liability to be declared at any time after the assessment, gives competence to the collection office, requires notification of the full decision with the ground of liability, and limits the challenge in article 42.2 cases to the overall scope, excluding the application of article 212.3 LGT. BOE-A-2003-23186
• Art. 235 LGT. Sets one month from the day after notification to lodge the economic-administrative claim, accepts a short pleading with or without arguments addressed to the office that issued the act, and requires electronic lodging for those obliged to deal with the authorities electronically. BOE-A-2003-23186

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

Frequently asked questions