Tax procedure refers to the set of actions through which the Tax Administration verifies compliance with tax obligations and, where applicable, regularises the taxpayer’s position through tax assessments. A Spanish Tax Agency (Agencia Tributaria or Hacienda) inspection is its most relevant tool for investigating facts, verifying tax returns and obtaining information.
What Is a Tax Inspection?
A tax inspection allows the Tax Administration to examine and investigate the facts, acts, elements, activities and circumstances determining a tax obligation. Its functions include verifying the truthfulness and accuracy of tax returns, investigating facts unknown to the Tax Agency, checking values, and reviewing compliance with requirements for tax benefits or special tax regimes.
The purpose of the procedure is to verify the proper fulfilment of tax obligations and, where appropriate, to regularise the taxpayer’s position through one or more tax assessments.
Stages of the Procedure
Every tax procedure is structured in three stages: initiation, processing and termination.
- Initiation of Proceedings: A tax inspection may be initiated ex officio or at the request of the taxpayer. When initiated ex officio, it begins through prior written notice served on the taxpayer or through the inspector’s appearance, in which case the start is notified at that moment.
- In the notice, the Tax Agency may summon the taxpayer to appear at a specified place, date and time, or to provide documentation and other necessary information.
- Scope: Partial or Comprehensive. Inspection proceedings may be partial or comprehensive. They are partial when they do not cover all elements of the tax obligation or all periods under review.
- A taxpayer subject to a partial inspection may request that its scope be extended to a comprehensive inspection in respect of the affected tax and periods. The request must be made within 15 days of notification of the initiation, without interrupting the ongoing proceedings.
Rights and Obligations of the Taxpayer
During an inspection, the taxpayer must provide access to documentation, data and premises where legally required, and must respond to requests made by the Administration. In return, the taxpayer must be informed at the outset of the nature and scope of the proceedings, as well as of their rights and obligations.
The most common inspection actions include:
- Requests for accounting, tax and corporate documentation.
- Review of invoices, contracts, payments and transactions with third parties.
- Analysis of periodic tax returns and specific taxes.
- Verification of related-party transactions, deductions, exemptions and special tax regimes.
- Time Limits; Inspection proceedings must conclude within 12 months from notification of their initiation, except in cases where the law provides for an extension. They are deemed concluded when the resulting administrative decision is notified or deemed notified.
The initiation of the procedure interrupts the limitation period for the Administration to determine tax liabilities, as well as the limitation period for imposing penalties arising from the adjustment.
Possible Outcomes
An inspection may conclude without any adjustment if the Tax Agency considers the taxpayer’s tax position to be correct, or with a proposed assessment. Such an assessment may involve additional tax, late-payment interest and, where applicable, penalties if culpable non-compliance is found.
The taxpayer may submit arguments and documentation during the proceedings. The appropriate strategy is generally to reconstruct precisely the economic and legal reality of the transactions, identify correctable formal errors, and assess the risk associated with each item before accepting or challenging the proposed assessment.
Practical Recommendations
- Keep invoices, contracts, bank statements, tax returns and supporting documents for relevant transactions properly organised.
- Pay particular attention to international transactions, transfer pricing, VAT and imports, and related-party transactions.
- Respond to information requests within the deadline, fully but strictly limited to what has been requested.
- Obtain specialised advice from the first notification, especially where material tax adjustments may arise.
- Consider requesting a comprehensive inspection where a partial review could leave issues unresolved.
In short, a Tax Agency inspection does not necessarily imply an infringement: it is a verification procedure. However, proper documentary and procedural management is essential to limit tax exposure and adequately defend the taxpayer’s position.