Spain: Losses could make tax on economic activities bill invalid

The most notable of these judgments are described below:

1. The Extremadura High Court, in a judgment delivered on December 2, 2021, recognized the taxpayer’s right to obtain a proportional reduction of their tax on economic activities liability in respect of the mandatory shutdown period for business activities in 2020, confirming the conclusion by Alicante Judicial Review Court number 3, summarized in our November 2021 Tax Newsletter. The court also expressly rejected in this judgment the reasoning (against this conclusion) supported by the Aragon Regional Economic-Administrative Tribunal in a decision on July 22, 2021, discussed in the same newsletter.
2. Moreover, in a case handled by Garrigues, Santander Judicial Review Court number 2 delivered a judgment on December 16, 2021, setting aside a company's tax on economic activities bill for 2020, because it had been issued without taking the special circumstances in that period into account.
       
   The court held that the applicant had produced proof that there had been losses throughout the economic sector to which it belongs in 2020, which means that one of the premises in the legislation on the tax on economic activities for being able to charge the tax was not fulfilled.
           
   This decision went a step further than the Extremadura high court judgment, because it set aside the whole tax on economic activities liability instead of reducing it in proportion to the period in which there was a mandatory shutdown of economic activities.

In short, though not yet prevalently, the courts seem to be accepting of the need to (i) take into account the exceptional circumstances that impacted on 2020 as a result of the pandemic; and to (ii) ensure fulfillment of the principles of economic capacity and prohibiting confiscatory tax, which govern the Spanish tax system.