One of the most powerful collection tools of the Spanish tax authorities. Differences between joint and subsidiary liability, most frequent grounds and the rights of the alleged responsible party.
Spanish tax liability derivation is one of the most powerful mechanisms available to the Spanish tax authorities to secure collection of tax debts. Through this procedure, the Spanish tax authorities may demand payment of taxes, interest, surcharges and even penalties from persons other than the main taxpayer where certain grounds set out in the Spanish General Tax Act are met.
In practice, this means that a director, a shareholder, a successor of a business activity or even a third party may end up personally responsible with their own assets for someone else’s tax debts.
For this reason, knowing when a liability derivation may be triggered and what the rights of the alleged responsible party are is essential to prepare an adequate defence strategy.
What is a Spanish tax liability derivation?
Spanish tax liability derivation is the procedure through which the Spanish tax authorities transfer the payment obligation of a tax debt from the main debtor to another natural or legal person that the Act considers responsible.
It is neither an automatic nor a discretionary decision. The Administration may only order a derivation where the requirements established in the Spanish General Tax Act are met and after conducting the corresponding administrative procedure, respecting the safeguards and the right of defence of the interested party.
Depending on the ground, liability may cover:
- The tax debt.
- Late-payment interest.
- Enforcement-period surcharges.
- Procedural costs.
- Tax penalties where the Act expressly so provides.
When can the Spanish tax authorities derive a tax debt?
The Spanish General Tax Act regulates numerous grounds on which the Spanish tax authorities may demand payment of a debt from a person other than the taxpayer.
As a general rule, the legislation distinguishes between joint liability and subsidiary liability, each with different requirements and consequences.
Joint liability derivation
Joint liability is mainly regulated in article 42 of the Spanish General Tax Act.
In these cases, the Administration may pursue the responsible party directly without first having to declare the main debtor insolvent.
These are particularly serious cases, such as active collaboration in a tax infringement, concealment of assets to prevent the collection of a debt or succession in certain business activities.
Subsidiary liability derivation
Subsidiary liability is regulated in article 43 of the Spanish General Tax Act.
Unlike joint liability, the Administration must meet certain additional requirements before demanding payment from the responsible party, and it is common for the main obligor to be declared insolvent first.
This is the most frequent modality in proceedings against company directors.
Most frequent grounds for liability derivation
The Spanish tax authorities may initiate a derivation procedure in many situations foreseen by the Act. These are some of the most common cases.
Liability of a company director
This is the ground that most frequently reaches the courts.
The Spanish tax authorities may derive the company’s tax debts to the director where they consider that the director failed to take the necessary steps to comply with the company’s tax obligations, tolerated non-compliance or adopted decisions that facilitated the commission of tax infringements.
Derivation may also occur when the company ceases its activity leaving outstanding tax debts and the director did not act with the required diligence to pay them.
Succession in a business activity
Whoever acquires a business or continues a business activity may be liable for certain tax debts of the previous owner.
The Administration particularly analyses whether there is a genuine continuity of the business activity and whether the requirements provided for by law to declare such succession are met.
Concealment or transfer of assets
Liability may also reach those who collaborate in the concealment or transfer of assets with the purpose of preventing the collection actions of the Spanish tax authorities.
These files usually require significant evidentiary activity by the Administration and generate abundant litigation before the courts.
Breach of seizure orders
The Act also provides for liability of those who breach seizure orders or collaborate in the release of assets already seized by the Spanish tax authorities.
Contractors and subcontractors
Certain contractors and subcontractors may be subsidiarily liable for tax obligations related to the works or services contracted where the requirements set out in the regulations are not met.
For this reason, it is particularly advisable to request the corresponding tax certificates before making certain payments.
What are the differences between joint and subsidiary liability?
Although both figures allow the Spanish tax authorities to claim a tax debt from a third party, there are very relevant differences.
Joint liability allows the Spanish tax authorities to pursue the responsible party directly from the start of the procedure, whereas subsidiary liability generally requires that collection has first been attempted against the main debtor and that the requirements established in the Act are met.
In addition, each modality responds to different grounds and has particularities both in its procedure and in the scope of the liability.
Can the Spanish tax authorities also claim penalties and interest?
Yes, although it depends on the specific ground.
The Spanish General Tax Act provides that certain modalities of liability include not only the tax debt but also the penalties, late-payment interest and surcharges.
It is precisely for this reason that it is essential to analyse each file individually, since the economic scope of a derivation can vary considerably depending on the legal basis used by the Administration.
How to defend yourself against a tax liability derivation?
Receiving a derivation ruling does not mean the Spanish tax authorities are necessarily right.
Many procedures are annulled by the courts due to defects in their processing, lack of reasoning or absence of the requirements demanded by the Act.
Among the aspects that must be reviewed are:
- The correct application of the legal ground invoked.
- The existence of sufficient evidence.
- The reasoning of the ruling.
- Respect for the administrative procedure.
- The correct quantification of the derived debt.
- Possible statute-barred limitation.
- The existence of formal defects that may lead to the annulment of the procedure.
Prompt action from the moment the notification is received can be decisive for the defence of the file.
How can TAXAKALE help?
At TAXAKALE we are a boutique Spanish tax firm specialised in tax procedures, tax audits and defence against the Spanish tax authorities.
We advise companies, directors and individuals on tax liability derivation procedures, administrative appeals, economic-administrative claims before the TEAR and the TEAC, inspection procedures and judicial review appeals.
We analyse every file individually, identify the weak points of the Administration’s action and design a legal strategy aimed at protecting our clients’ assets.
If you have received a notification of tax liability derivation or wish to analyse the risks in your company, our team can help you evaluate the different alternatives and prepare the best possible defence.