Possibility to recover BAT for COVID-19 restrictions
The recent ruling of an administrative court in Valencia opens a way to apply for IAE refunds due to the declaration of the state of alarm by COVID-19 and the restrictions on businesses that were forced to close.
The Tax on Economic Activities (hereinafter IAE) is a local tax, of a periodic nature, which is levied on the development of any business, professional or artistic activity in national territory. Thus, the taxable event of this tax is constituted by the mere exercise of economic activities, and the accrual, or what is the same, the birth of the obligation to pay IAE tax occurs on the first day of the tax period, that is, on the first day of January of each year with respect to the activities in progress.
However, although art. 89 of the tax regulations provides that IAE tax rates are irreducible (for example, due to the temporary cessation of the activity), it does provide that these may be prorated by calendar quarters due to the cessation of the activity at some point during the tax year, and this enables the taxpayer to request a refund of the part of the tax corresponding to the calendar quarters in which the activity has ceased. It is on this basis that there could be arguments to claim a refund, albeit partial, of the IAE for the years 2020 and/or 2021, since in these years the activity has not been carried out by virtue of the restrictions adopted by the Government due to the COVID-19 pandemic, or it has been carried out with serious limitations. This is a case of absence of IAE taxable event.
The ruling of the Administrative Court No. 3 of Valencia makes it clear that, on the one hand, although the IAE accrued on 1 January, and the settlement for this tax would have become final because it had not been claimed within the voluntary period, the prohibition to carry out the activity due to the Government’s regulatory provision came to light after the accrual of the tax.
Consequently, in accordance with art. 89 of the IAE regulations and art. 221 of the General Tax Law, which recognises the right to a refund of undue income when so established by the tax regulations, would allow the taxpayer to make the appropriate claim requesting the apportionment of the annual IAE quota settled by the City Council. On the other hand, as the ruling itself mentions, the IAE regulations establish the procedures and implications of the cases of registration and voluntary cessation in the financial year, when determining the tax period, with express notification to the Tax Administration, as naturally, the tax law regulates normal cases, and not exceptional ones, as has occurred due to the circumstances of the COVID-19.
It is on the basis of this exceptionality, not contemplated in the IAE management regulations, that the ruling considers that the formality is not required, within the deadlines established in the regulations, for notifying the cancellation of activity. On the other hand, another additional argument for the filing of the IAE refund claim is linked to the principle of economic capacity, by which our tax system is governed. It is simply to point out that taxpayers who were forced to close their business completely for a large part of the year, or who carried it out with significant limitations due to capacity restrictions, and therefore did not demonstrate any economic capacity, are being required to pay a full tax.
Although this isolated ruling does not constitute case law and, therefore, its resolution is not binding for the local Administration, it paves the way for possible claims that may be filed in this respect, although these will not be peaceful, given that there is another previous resolution by the TEAR of Aragon, rejecting the refund request of another taxpayer due to the impossibility of carrying out his activity during the state of alarm.
The AddVANTE Tax Department remains at your disposal for further information or to resolve any queries that may arise in this area.