The businessman Juan Francisco Rosa has lost another lawsuit, this time against the Treasury, to whom he will have to pay more than 300,000 euros that he owed for more than a decade. This has been ordered by the Contentious-Administrative Chamber of the National Court, in a ruling dated June 22, which concludes that the company Hotel Princesa Yaiza S.A. evaded the payment of taxes, by carrying out an operation that only sought to benefit from tax benefits that did not correspond to it.
The events date back to December 2005, when Hotel Princesa Yaiza SA absorbed the entity Getsu No Denwa SL. “This is a merger of the so-called improper, since the absorbing entity held 100% of the share capital of the absorbed entity at the time of the operation”, the ruling emphasizes, which specifies that four years earlier, Hotelera de Yaiza SA (later Hotel Princesa Yaiza SA) had already bought the shares of Getsu No Denwa SL.
Afterwards, when submitting the corporate tax return for the year 2006, the businessman used the supposed “merger” to benefit from tax breaks.“The finding that a merger operation has the sole objective of obtaining a tax advantage and, therefore, is not carried out for valid economic reasons, may constitute a presumption that said operation has as its main objective or as one of its main objectives fraud or tax evasion”, the ruling states, citing different jurisprudence.
Thus, it confirms a resolution issued in 2017 by the Central Economic-Administrative Court, which was the one that Rosa later appealed in court. Now, in a ruling against which an appeal is still possible, the National Court has rejected his claims and has sided with the State Administration, also condemning the businessman to pay the costs generated by this procedure.
A “partial” tax inspection on the year 2006
The irregularities in the payment of taxes for that year were detected four years later, in an inspection carried out in 2010 by State Taxes. “The actions were partial in nature for the Corporate Tax concept, year 2006, limited to the verification of the FEAC special regime”, the ruling specifies. And in that partial inspection, the possible tax evasion was detected.
“In the analyzed operation it seems to be inferred that the transmission of an asset is pursued through a business restructuring operation, not seeming to concur the assumptions mentioned in the corporate agreements, but that it is carried out with the mere intention of reducing the fiscal cost that would have to be borne with the direct sale of the asset”, the Inspection indicated in the agreement in which it proposed to apply a new liquidation.
Specifically, with the absorption, a land of 177,931 square meters passed to the name of Hotel Princesa Yaiza SA. In addition, although in the accounting of the previous company it appeared with a value of 105,094 euros, the report of Hotel Princesa Yaiza SA included it valuing it at 785,279 euros.
“The absorbing entity cannot proceed to the revaluation of the asset received as a consequence of the merger operation, since it has not been proven that the transferors (companies and individuals) have actually paid taxes on the capital gains obtained”, the ruling states in this regard.
On this point, the company argued that it only carried out “an accounting valuation, without fiscal significance”, but the Chamber of the National Court responds that according to the legislation, “the reflection in accounting necessarily has fiscal consequences, regardless of the adjustments and interpretations that proceed”.
Almost 70,000 euros only in late payment interest until 2011
As a result of that inspection and after rejecting the allegations presented by the company, the Tax Agency notified it that it had to pay 233,999 euros corresponding to the taxes evaded and another 68,509 euros as late payment interest until the year 2011, amounting the total sum to 302,508 euros (which could increase when updating the interest). However, Rosa continued trying to avoid the payment, first presenting a claim that was dismissed in 2017, and then going to court to try to annul that resolution, in a claim that has also just been rejected now.
In its appeal, Hotel Princesa Yaiza SA argued that the merger did have another purpose and that one of the objectives was “the grouping of assets in order to simplify the management and cost of administration”. However, the ruling recalls that when the Tax Inspection requested documentation on Getsu No Denwa -which was not registered in any section of the IAE, which did not declare any turnover in the Corporate Tax return of 2005 and which had not deposited its annual accounts in the Commercial Registry-, the company responded that it could not provide the required documentation since it was “an inactive entity”.
“The absorbed entity did not carry out economic activity and the absorbing entity does not see its activity altered by the absorption, so we cannot accept that there has been a business restructuring”, the ruling concludes, which emphasizes that the absorbed company did not even have workers.
“The absorbed entity had no activity and therefore did not need a management structure, while the absorbing entity does not see its activity altered. The keeping and deposit of books or liquidation of taxes cannot be considered management of an economic activity”, the ruling adds, which considers it proven that “the operation consisted of the transmission of a property, and this transmission of a property as a single object is not typical of a merger, in which business restructuring is sought”.
Thus, the ruling determines that there was “tax avoidance”, since the company applied in its declaration “a Special and favorable Tax Regime to an operation whose real content is the transmission of a property”, for which it should have paid much higher taxes, which are those that are now claimed with the corresponding interest.