The presumption of fraud or tax evasion, the abuses of Tax Administration
Article published in Legal Today: The abuses of tax administration
The recent judgement by the National Audience (Administrative Court, section 2), dated March 9th, 2011, shows a clear preoccupation for the abuses committed by the Tax Administration when interpreting the European Union anti-fraud rules relative to the common tax regime applicable to headquarter companies and affiliates of different member States (90/435/EEC directive (LCEur 1990, 921)), and more specifically relative to the applicable regime in the operations of corporate restructuring.
The referred Judgement establishes that the presumption of fraud or tax evasion made by the Tax Administration concerning such operations is abusive, given that the Tax Administration can enervate such a qualification and, therefore, validly oppose a regularization based on the exceptional concept of the Article 110 of the Corporate Tax law, putting forward the existence of valid reasons, which, in principle, are presumed to take part in any legal business celebrated under the protection of the freedom of pacts principle.
According to jurisprudence cited in the Judgement, it is the interested company that has to prove that the only or main purpose of the operation is not tax savings, but that there is an actual economic need to carry on such an operation, being of great extent the economic reasons that can be considered valid (organizational, commercial, financial, distribution, cost savings, etc.).
However, the Judgement clarifies – and here resides its relevance- that the justified allegation of the existence of such economic reasons is enough, without requiring any absolute proof, to turn off the fraud or tax evasion concept which opens the door to the use of the anti-fraud clause.
The Court therefore understands that the “iuris et de iure” presumption to which the Tax Administration refers to to qualify a corporate restructuring operation as fraud or tax evasion without considering the economic reasons given by the taxpayer to justify the operation is not acceptable.
In this regard, we must also remember the doctrine emanated from the Supreme Court concerning the presumption of innocence principle, which the High Court also considers applicable in the exercise of administrative authority.
The Constitutional Court has also manifested repeatedly that the duty to justify administrative acts is an obligation derived from rules that are part of ordinary law, this obligation thus reaching a constitutional dimension which tends to achieve the full execution of the remaining constitutional guarantees.
Javier Cárdenes Suárez
- Categories: International Law
