The four-year period of limitation of the tax authorities’ right to determine the tax liability by means of a tax assessment is to be calculated from date to date, regardless of whether the last day of this period is a working day or a non-working day.
In this circular we would like to inform you about the deadlines and conditions under which the tax authorities can check your company’s tax situation. The following are the general rules, special deadlines and cases of interruption related to the statute of limitations for tax obligations.
General Rule
4-year time limit. The tax authorities have a period of four years to check the self-assessment of a tax return submitted by your company. This period also applies for your company to rectify the self-assessment. This period starts on the day following the end of the statutory deadline for submitting the tax return, regardless of whether the tax return was submitted before the deadline.
Example: If your company files its Corporation Tax (IS) return on 10 July, the four-year period starts on 26 July (the day following the end of the general filing deadline).
In its ruling of 17 April 2024, the Supreme Court (SC) has established as a doctrine that the 4-year limitation period of the Administration’s right to determine the tax debt by means of the appropriate assessment, provided for in Article 66 of the General Tax Law 58/2003, is to be computed from date to date, regardless of whether the last day of this period is a working day or a non-working day.
Special time limits: 10 years for tax bases and deductions. For the verification of bases or quotas offset or pending offset, as well as deductions applied or pending application, the Inland Revenue may initiate a verification within 10 years of their generation and declaration. It is crucial that your company retains the self-assessment and accounting records until the limitation period for the audit of the last year in which the tax base or tax liability is offset and deductions are applied has expired.
Interruption cases
Interruption by the Inland Revenue. The limitation period is interrupted and the 4-year period restarts if the Inland Revenue notifies you of any action related to your tax return. This includes recognition, regularization, verification, inspection, assurance or liquidation, even if the decision is favorable to your company.
If the tax authorities review the VAT deducted by your company in the fourth quarter of 2022 and the favorable ruling is notified on 15 July 2024, the limitation period is extended to 15 July 2028 for other aspects not previously reviewed.
Related obligations. The interruption also occurs if the tax authorities initiate an examination of obligations connected to a specific tax. For example, if the tax authorities consider certain expenses to be non-deductible for corporate income tax purposes, they may also consider the input VAT on such expenses to be non-deductible, thereby interrupting the VAT limitation period.
Interruption by the company. Your company can interrupt the limitation period by its own actions, such as filing a supplementary tax return, rectifying a self-assessment, or lodging a claim or appeal relating to a tax return settled by the tax authorities.
Incentives with conditions
Extension of the limitation period. The limitation period for incentives that depend on the fulfilment of a future condition can also be extended. For example, the freedom to depreciate for job creation depends on the increase and maintenance of employment during the following two tax years. If the condition is met in 2024, the Inland Revenue will be able to check until 25 July 2029 (when the 2024 IS becomes time-barred).
It is essential to be aware of these deadlines and assumptions for proper tax planning and management. Remember that the 4-year limitation period may start again in case of an audit by the tax authorities or if your company takes specific actions such as filing an amendment.
For further information, please consult Tax Advice.
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