Applying automatic penalties on new tax returns modifying previous tax returns is not legal

01.2013

A Court of the “Audiencia Nacional” ruling of 12 November 2011 declared void the penalty that had been imposed on a company for the filing of VAT returns in replacement of previously filed returns. The reason for newly filing these tax returns was to modify the previously filed returns in order to adjust them to new criteria established by the tax administration during a tax inspection. After the inspection was completed, the company realised that, in subsequent years that had not been covered by the inspection, input VAT had not been deducted at the right time.

Thus, the company voluntarily decided to amend several previously filed tax returns and, as a result, the company had to pay. The tax administration decided to impose a penalty for the late filing of these tax returns. The Court concluded that this penalty was not rightful, as the inspection carried out by the tax administration, which had produced changes in the deductibility of input VAT, had not resulted in any penalties. Accepting the penalty would imply punishing a company that voluntarily decided to carry on with the regularisation initiated by the tax administration for tax periods that had not been subject to inspection. Unfortunately, this ruling is not helpful in the event of late filing of tax returns that are not included in the case under examination. In such cases, the penalty applied is automatic and depends on the delay: 5% up to 3 months, 10% up to 6 months, 15% up to 12 months and 20% over 12 months.

++Published at the tax newsletter of the German Chamber of Commerce related to VAT news.++