The court declares that the Tax Agency deliberately delayed the formal start of an inspection to exceed the legal twelve-month limit. The Gran Canaria company Turisman 2000 e Hijos faced an investigation that lasted over two and a half years without justification.
The Second Section of the Administrative Litigation Chamber of the National Court has issued a ruling that shakes the foundations of the Tax Agency's inspection practices. The court annulled the inspection carried out on the company Turisman 2000 e Hijos, based in Gran Canaria, considering that the Administration acted "in fraud of law". The ruling, dated last month, concludes that the tax authorities manipulated the timelines to evade the twelve-month maximum limit set by law for such procedures.
The origin of the conflict: the Reserve for Investments in the Canary Islands
It all began with the Corporate Tax for the 2010 financial year. The company applied the Reserve for Investments in the Canary Islands (RIC), a tax incentive of the Economic and Fiscal Regime (REF) that allows for a reduction in the taxable base in exchange for reinvesting profits in the islands. Turisman 2000 e Hijos had sold two tourist apartment complexes in Maspalomas and allocated part of the funds to new investments, taking advantage of this legal benefit.
However, the Tax Agency considered that the operation did not meet the requirements and opened an investigation. What seemed like a routine check turned into a bureaucratic ordeal that lasted over three years. The company received a request for information in October 2012, which it responded to within weeks. But the formal inspection was not notified until March 2015, and the case was closed in May 2016.
An administrative silence of two and a half years
The ruling of the National Court highlights that almost two and a half years passed without any justified action between the first request and the formal start of the procedure. The judges believe that this gap was not due to inefficiency, but rather a deliberate strategy: the Administration already had all the documentation since late 2012 and used it to "preconstitute the evidence" in the shadows, without the legal clock starting to run.
"It makes no sense to open a formal procedure in 2015 when the Administration already had all the documentation since late 2012," the ruling states. By delaying the formal start, the Tax Agency avoided the twelve-month deadline expiring, which would have forced it to close the inspection or justify an extension. The court describes this maneuver as "fraud of law", a violation of the taxpayer's right to have their matters resolved within a reasonable time frame.
The State, condemned to pay costs and without appeal
The Tax Agency has decided not to appeal the ruling to the Supreme Court, which means that the defeat is final. The claimed debt has legally expired and the General Administration of the State has been condemned to pay costs. For the Canary Island businessman, the news is a relief after years of legal and financial uncertainty.
However, the case leaves a bittersweet taste. The cost of this procedural manipulation will be borne by the taxpayer through public budgets, while the officials who designed and executed this strategy bear no financial or professional responsibility. The ruling highlights the asymmetry between the State, which has unlimited resources to prolong procedures, and the productive sector, which bears the financial strain and paralysis of its investments alone.
For entrepreneurs and self-employed individuals in the Canary Islands, this ruling is an important precedent. The Reserve for Investments in the Canary Islands is a key tool for securing capital in the islands, but its application has been the subject of numerous conflicts with the Tax Agency. The ruling of the National Court reinforces the idea that legal deadlines are not merely formalities, but a guarantee against the sanctioning power of the Administration.
"The legal twelve-month deadline is not a mere formality, but the last line of defence against a sanctioning power that audits itself," the court emphasizes in its ruling.
The company Turisman 2000 e Hijos, which operates in the tourist sector of Maspalomas, can now return to normal business activity. The ruling not only annuls the debt but also opens the door for other taxpayers in similar situations to challenge inspections that have been unjustifiably prolonged. Tax experts recommend that entrepreneurs review the timelines of any inspection procedure and seek legal advice in the event of any suspicious delays to prevent the Tax Agency from playing with the clock.
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