The Supreme Court establishes the criteria for tax advice to request the return of undue income to the Treasury
In the latest Supreme Court (SC) ruling, the right to request the return of undue income to the Treasury is included. In this case, the background analysed is as follows:
- A company had self-assessed its corporate tax, declaring as income some commissions paid by another company.
- The second entity is subject to an inspection that concludes with a settlement that states that those commissions are not deductible expenses since they are, in fact, remuneration for the participation in own capital.
- When this settlement becomes final, the first company requests a refund, as undue income, of the amount of those commissions that it considered as income in its corporate income tax self-assessment.
- Finally, this request is made after more than four years of the statute of limitations.
The Supreme Court analyses when the statute of limitations should apply to the right to request the refund of undue income. To this end, the Court uses the following arguments:
- An Administration that objectively serves the general interest and that must adjust its actions to the Law and to the Law could not ignore the fact that the regularization that it made to the company to which it rejected the expense had a full impact on the tax situation of the one that had declared the income.
- The classification of the expense implied an identical classification of the income made.
- The right to request a refund of undue income may arise, not when such income is made, but when the taxpayer becomes aware that it was undue, since that is when the right to claim arises for him.
In conclusion, the ruling states that the initial day of the limitation period for requesting the return of undue income will correspond to the date on which it is established that the income is of that nature. Therefore, the period will begin when the Administration makes a classification that is incompatible with the condition of the affected revenue as due.
B Law & Tax
International Tax & Legal Advisors.