Simulated loans: Judicial criterion issued by the High Court of Justice of Catalonia.
We present the summary of the judgment issued by the TSJ of Catalonia, 933/2022, in which it considers that there is an absolute simulation of the loans granted based on a series of aspects and facts that lead to presume that such amounts delivered do not correspond to the object and purpose of the same.
The procedure is the result of an inspection in which the Administration considers that the loans granted by the taxpayer (to a related company, being the sole shareholder and its sole partner and administrator), are simulated and cover up transfers of funds free of charge.
According to the inspection, after reviewing the documentation provided by the taxpayer, the alleged loans are not such, since, after analyzing the characteristics, the financial operations would never have been agreed between independent parties, nor the agreed conditions correspond to those of the market.
For the latter, the described operations imply the delivery of money from the company to the partner to be used for the subsequent investment of the latter in its business project. In other words, it is considered that there is a distribution of dividends to the shareholder for subsequent application to the financial needs of the latter, mainly to be materialized in a trust abroad.
The lower court’s decision makes a disquisition about the proof and how, through indications, the Administration can prove the existence of simulation. Thus, although the party makes an effort to justify that the position of the inspection is not correct, the Chamber states that it corroborates the criterion of the first one by considering that the contributions of money have not been made as a loan, on the basis that the will to proceed with the reimbursement has not been accredited, nor has the effective obligation to make said payment been proven.
The Court considers that the provision of bank certificates referring to transfers of the debtor returning part of the money are not sufficient to prove the will to return the loan, since it was detected by the inspection that, a few days later, again, the debit balance with the lender increased.
In addition, another aspect analyzed by the Court is that the alleged loans do not meet the formal requirements either, which is another element that corroborates the interpretation maintained. This, together with the fact that there is no record of the repayment term or the existence of guarantees, nor that these loan contracts have been presented and settled before the tax office, underlines the conceptualization of the operation as simulated.
Notwithstanding the foregoing, another of the aspects taken into account by the Court, and possibly one of the most relevant, is that, after analyzing the financial situation of the entity receiving the funds, it shows a lack of capacity to repay them, in terms of its capacity to generate current or ordinary income (in the specific case, it had a negative net worth situation).
Therefore, with all this, the Court understands that the Administration, through its analysis, fulfills the burden of proof and therefore confirms the liquidation issued by the inspection.
In this respect and, based on the position of the Chamber, we recommend reviewing loans granted to entities in which no interest is generated, the loan is not documented, the receiving entity does not have the capacity to return the funds, in order to analyze the risks that may exist and, if applicable, regularize the situation. In this sense, we remain at your disposal in case you consider appropriate to review these aspects.
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