VAT tax base on undeclared transactions


Judgment of the Spanish Supreme Court of 27 September 2017, in response to an appeal in cassation.

The issue consists of determine if in cases where the Tax Audit discovers transactions not declared, should be understood including VAT on the price agreed between the parties, in determining the VAT taxable base corresponding to these operations.

PESQUERAS PARDAVILA, S.A requests the annulment of the judgment of the TSJ OF Galicia contested, as well as related settlement and penalty, and declare that article 78.One of the Spanish VAT Law should be interpreted in the sense that when the parties have established the price of goods without any mention to the VAT and the seller of said goods is the debtor of the VAT due on the taxable operation, this tax should be considered already included in the price, if the seller does not have the ability to recover from the purchaser the VAT quota claimed by the tax administration.

The argument of PESQUERAS PARDAVILA to assert that the total amount received includes VAT, is that in another case, it would alter the nature of such a tax because a part of it would be paid by the company before the Spanish Tax Authorities without having received it from the clients. That is, it is not paid by the acquirer but would be borne by the seller, which is contrary to the basic principle of the directive, and which constitutes the basis of the invoked ECJ, of November 7, 2013, Tulica and Plavoin, joined cases C-249 / 12 and C – 250/12, according to which the VAT system is intended to tax only the final customer.

However, the thesis of the of the Galicia’s Court, is that when it comes to sales not declared, located aside from the tax law by the parties, the VAT is not understood included in the price of these sales. Therefore, according to this view, it would be necessary to differentiate between sales correctly declared for the determination of the corresponding taxable bases in which, in accordance with the doctrine of the European Court of Justice, it would have to be understood VAT included in the price, and sales not declared which does not proceed such inclusion.

Finally, the Spanish Supreme Court has estimated that the doctrine expressed in the aforementioned judgment of the ECJ is applicable to the present appeal, noting, in addition, that the applicable rule does not allow to the seller the recovery of the VAT demanded by the Spanish Administration due to the fact that it is not possible rectification of VAT quotas charged when:

1st) is the tax administration which shows, through the corresponding settlements, output VAT quotas not charged higher than those declared by the taxable person.

2nd) the conduct of the taxpayer is constitutive of tax offense.

Not shareable objections which the solicitor of the State opposed to the application of the doctrine of the decision of the ECJ of November 7, 2013, Tulica and Plavo ° in, since:

  • The application of the doctrine established by the judgment of the ECJ is not conditioned to not have hidden from Tax Authorities the activity in question.
  • Although each Member State is competent to adopt all legislative and administrative measures necessary to ensure that the VAT be perceived entirely, and to fight against fraud. However, such measures should not be more than necessary to achieve the objective pursued. Now, precisely this would happen if a situation in which the supplier is obliged to pay the amount of VAT, this not being compatible with the basic principle of the VAT system, which consists of such a tax is intended to tax only to the private individual.

With respect to the Corporate Income Tax, the settlements have to be corrected, in that to determine gains in the IS, the hidden sales referred to, the corresponding price has to deduce the VAT amount in accordance with the doctrine of the ECJ, it must be understood as included therein.

The exposed arguments justify estimation of the appeal interposed as soon as comes the annulment of contested penalties and settlements so that it takes into account, on new settlements and penalties that are practice and agreed, that the price agreed by the parties for specified operations, in which there is no mention of accrued VAT, includes such a tax.

The following doctrine is established on the raised issue: when determining the tax base for corporate income tax, article 78.One of the Spanish VAT Law, in connection with articles 73 and 78 of the directive 2006/112/EC of 28 November 2006 Council, relating to the common system of VAT, and the interpretation that these precepts is the judgment of the ECJ of November 7, 2013, Tulica and Plavoin , Affairs accumulated 249/12 and 250/12, should be interpreted in the sense that in cases where the tax audit discovers transactions not declared subject to said tax not invoiced, it has to be understood that VAT is included in the price agreed by the parties by such operations.

However, the decision is not unanimous, but there are two magistrates with different opinion.

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