Client’s Situation
The owner of a service-sector company in Spain contacted us after the Spanish Tax Authority (Hacienda) initiated a tax inspection covering the previous four years of business activity. Following the preliminary inspection report, the tax authorities alleged: underpayment of Corporate Income Tax, improper deduction of certain expenses, VAT (IVA) errors, additional tax assessments exceeding €480,000, penalties amounting to 50% of the assessed amount. The total financial exposure exceeded €700,000.
Main Claims of the Tax Authority
Certain expenses were classified as “not related to economic activity.” Services provided by some contractors were deemed insufficiently substantiated. The Tax Authority questioned the company’s transfer pricing policy within the corporate group. Formal deficiencies were identified in VAT documentation.
Common Business Mistakes During Tax Inspections
In most inspections, companies tend to make the same errors:
- Providing documentation without prior analysis. Businesses often submit all requested documents without a legal strategy.
- Giving verbal explanations without preparation. Any statement may be officially recorded and later used against the company.
- Assuming that correct accounting eliminates risk. A tax inspection is not purely accounting-based; it involves legal qualification of transactions.
- Signing inspection reports without objections. Once signed without remarks, defence options become significantly limited.
Our Defence Strategy
We conducted a full legal audit: analysis of the reasoning behind the additional assessments, identification of weaknesses in the inspectors’ arguments, verification of compliance with procedural deadlines and requirements. Hacienda frequently disallows expenses on formal grounds. We demonstrated the economic connection between expenses and business activity, provided additional contracts and supporting documentation, relied on case law of the Spanish Supreme Court. We submitted comprehensive written objections including legal arguments, references to judicial practice, economic analysis, procedural observations.
Result
More than 60% of additional tax assessments were cancelled. Penalties were reduced. Interest amounts were recalculated. The company avoided potential criminal liability. Total financial savings exceeded €400,000.
