The coexistence of the interests of the tax administration and the rights of the taxpayer

With regard to the rights and guarantees of taxpayers, there is a clear imbalance between the interests of the administration and the guarantees of taxpayers. There is also a tendency to give priority to the interests of the administration, which are justified in the fight against tax fraud, for the sake of the general interest and in order to enforce the obligation to contribute laid down in Article 31 of the EC Treaty, but this should not lead us to cross a fine line where the rights of taxpayers, who are considered by the administration to be potential fraudsters, are not guaranteed. With regard to the issue of retroactive proceedings, the doctrine of the Constitutional Court does in fact allow for the reopening of the liquidation (double jeopardy) and, among the limits that arise, that of the statute of limitations is particularly important because it is closely linked to legal certainty and to many of the situations in which we find ourselves. The problem we have is that it is not very clear at what point we are, or where the concepts are not clear, and sometimes this leads precisely to a lack of legal certainty in the sense of predictability, because we do not know, and the person concerned has no way of knowing in advance what possibilities he has or how he is going to defend himself.

1.  The relationship between limitation and the principle of legal certainty

The statute of limitations is based on the principle of legal certainty and strikes a balance between legal certainty and material justice. The statute of limitations means that it can be interrupted by any action of the AEAT, taken with the formal knowledge of the taxpayer, leading to the recognition of all rights, obligations and debts; this is stipulated in the LGT. The problem is whether or not this limitation or interruption can occur. The doctrine of the SC focuses in principle on the distinction between nullity and voidability, recognising that absolute nullity does not interrupt the statute of limitations and, on the other hand, that it does interrupt it when there are only grounds for nullity, i.e. when we are talking about substantive grounds. Nullity would allow the interruption of the limitation period and the period would start again.

Although the doctrine and case law state that the distinction between total nullity and avoidability is not clear, and the doctrine generally does not agree with this distinction because it does not respect legal certainty and here a different solution could be justified, there are individual opinions in many Supreme Court rulings that there is no legal basis for this distinction between nullity and avoidability in the field of tax law.

The concession of this difference in treatment may also lead to the inapplicability of limitation periods through the repetition of settlements based on different problems. The STS of 2 June 2004 made the interruption of the limitation period dependent on the validity of the administrative act. The STS of 19 June 2004 stated that in the cases referred to in Article 153 of the Code of Criminal Procedure, the statute of limitations is interrupted only when the body is manifestly incompetent and the facts are constitutive of the offence, regardless of the legal procedure. This doctrine is contrary to the distinction between nullity and voidability, the lack of a legal basis in favour of the validity of acts, in the context of legal certainty, effective judicial protection and the principle of good administration. The STS of 29 September 2014 established the distinction, which leads to the fact that always granting the administration an indefinite period for settlement means rewarding those who do things badly and leave tax procedures open indefinitely; this is linked to the right to good administration. Finally, the STS of 20 December 2016 ruled that the interruptive effect of the statute of limitations can only be denied to acts that are null and void in themselves, not to those that can only be annulled. This line of jurisprudence is currently being maintained by new rulings issued in 2022.

2.  A few practical examples

The nullity of total nullity and others in which they do not pose that it is a mere nullity in cases: STS of 11 April 2022 in relation to the STS of Asturias of 23 April 2021. While the CJEU considers that an assessment addressed to the taxpayer instead of the substitute is a material defect affecting an essential element of the tax relationship and is characterised as an absolute nullity that does not interrupt the limitation period, the CJEU of Asturias, in relation to a case involving a settlement addressed to a taxpayer who should not be taxed but whose heirs should be taxed under the ISD, requested nullity and prescription for the same reason and the CJEU considered that it was not a defect of the 217 LGT of total nullity, but that it was simply null and void. In order to raise these doubts that may exist in the distinction between nullity and invalidity, these recent judgments of March 2022 in which the invalidity of the ISD was raised on the grounds of territorial incompetence.

La Rioja initiated a review procedure and then a ratification procedure, which was effectively resolved by granting this rectification with retroactive effect from 1993; however, this was granted when the limitation period for the tax return had already expired in 2004. The liquidation was appealed; the TEAC annulled the decision for lack of competence, but stated that it could not be rectified and that it could be annulled; finally, it went to cassation because, although it understood that the distinction between nullity and annullability for the purposes of limitation had already been applied many times and had already been assessed by the SC, since there were many dissenting opinions and doctrines, it was necessary to make a clarification.

However, the SC reached the same conclusion as the TEAC and the TSJ: It was not manifestly incompetent because there was an a posteriori rectification that the doctrine, although it seems to maintain the same, introduces a nuance, which is that the law does not speak of the fact that the statute of limitations can be interrupted for valid acts, but speaks of actions, so it considers that there is only an action if it is real or fictitious, considering that in cases of nullity by operation of law we would be a fictitious action and there would be no action as such.

3.  How do the SC, the ECtHR and the CJEU interpret the statute of limitations and nullification of proceedings?

The SC does not deal the with ordinary statue of limitations unless its application directly affects fundamental rights. However, it is evident that the statute of limitations is related to the principle of legal certainty in the three jurisdictional orders; they all underscore this relationship between demands of legal certainty and the statute of limitations. The STC (Spanish acronym for Sentence of the Constitutional Court) of 16 November 2021, considered the possibility of interrupting the statute of limitations through notifications of defective tax audits because they were not carried out at the address of the taxpayer who was then correctly notified of the order for enforcement. The Constitutional Court understood that defective notifications due to lack of diligence on the part of the AEAT cannot interrupt the statute of limitations because this would give it a position of superiority over the taxpayer.

In the case of the ECtHR regarding the statute of limitations and legal certainty, a specific period for resolution is not discussed and depends on the complexity of the case. However, it does suggest the necessity of applying the statute of limitations to avoid situations of non-applicability. Example: The case of OAO Yukos c. Russie. The statute of limitations is a guarantee for taxpayers because they respect and prevent violations of fundamental rights and they cannot be undermined by the administration’s interpretations of its applicability. Regarding legal certainty and the statute of limitations, these periods are a constant.

This was particularly relevant in the Semenov case (16 March 2021) because there was a misuse of power in the consideration of the court in which a reversal of the statute of limitations period was considered after the statute of limitations had expired, which was not considered to have started until the prosecutor’s actions were concluded, despite the fact that the established period was 3 years. The ECtHR states that laws of the statute of limitations cannot be deprived of legal effect based on a disproportionate advantage given by the administrations in their interpretation of this element of the statute of limitations, which is part of legal certainty and which leads in practice to situations of non-applicability.

The CJEU’s view is similar, with several rulings indicating to need to impose reasonable limitation periods that guarantee the foreseeability of situations and legal relationships that cannot be permanently pending. The Sentence of 27 January 2022 regarding non-compliance in relation to 720 tax forms and the obligation to declare foreign assets. Most or the bulk of the judgement deals with exaggerated penalties by the Spanish government, which were applied when unjustified capital gains were considered to have arisen when the property abroad was not declared within the time limit when such possessions were discovered. This period was practically non-applicable, counting from the last year for which there was no statute of limitations. Apart from a few specific cases in which there was proper evidence, this was non-applicable.

The Spanish state was condemned for failing to apply the statute of limitations in the event of non-compliance by considering assets not declared or declared late as unjustified capital gains, without the possibility of applying the statute of limitations, with the added application of a proportional fine that can be accumulated to the fixed amount fines. The CJEU held that the fundamental requirement of legal certainty precludes public authorities from using their powers indefinitely to put an end to an unlawful situation; this is contrary to legal certainty and cannot and does go beyond what is necessary to comply with the fight against tax fraud.

In conclusion, the concepts are not clear regarding the doctrine and jurisprudence. This creates a situation of legal uncertainty for the taxpayer, which regarding the right to good administration, suggests that there is a situation of subordination and violation of taxpayers’ rights. Furthermore, as seen through the various examples of judgments, the Administration appears to act with a certain apathy, considering taxpayers as potential tax evaders, and this pattern of behaviour by the tax administration cannot prevail over its diligent action with respect to the statute of limitations.