Recently, the Third Chamber of Contentious-Administrative of the Supreme Court (TS), second section —by means of judgment 24/2023 of January 12, 2023 (Rec.2059/2020)—, has rectified the doctrine that the same court had established something more than two years earlier. This has caused deep concern in the legal spectrum. Above all, it has generated a series of doubts in relation to the taxation of default interest in Personal Income Tax (IRPF).
De facto, two years earlier, the TS, in the judgment of December 13, 2020 (Rec. Cassation 7763/2019), had ruled that the late-payment interest paid by the State Tax Administration Agency (AEAT), when implementing a return of undue income, are not subject to personal income tax. This is because "whenever one returns to the taxpayer some stakeholders improperly supported by the taxpayer, compensating, there is no such capital gain, but a rebalancing occurs, canceling the loss suffered before."
In said 2020 sentence there was a dissenting opinion formulated —curiously— by the same magistrate who has now been the rapporteur of this last sentence of January 2023, which has caused the interpretive lurch with respect to the one that had been established. He considered that "the passive late-payment interests, in favor of the taxpayers, are capital gains that are part of the general income of personal income tax."
The criterion followed by the Chamber, when it comes to approving the majority of the ruling of this last Judgment, is that in accordance with Law 35/2006 on Personal Income Tax (LIRPF):
It should be noted that this last sentence, of January 2023, in turn has two dissenting individual votes. They come to highlight that the correct doctrine is the one established in the judgment of December 3, 2020. Consequently, they defend the non-subjection of late-payment interest in favor of the taxpayers and argue their maintenance of criteria based on various reasons.
This doctrinal change supposes an attack with pernicious consequences to legal certainty. The message that is poured out is devastating, with the existence of radically opposed pronouncements and close in time by the same court.
«This doctrinal change supposes an attack with pernicious consequences to legal certainty. The message that is poured out is devastating, with the existence of radically opposite pronouncements»
On the other hand, the recognition of indemnities, by a Tax Administration, tries to restore a patrimonial balance that previously had broken the administrative action itself. For this reason, the action of the public entity amending the damage caused, cannot be imputed as income in the personal income tax.
In short, the articles of the Personal Income Tax Law, to which the sentence alludes and bases its foundation (articles 34 and 37 LIRPF), soberly deal with the quantification of capital gain by its "market value". This ended up being totally inadequate when it comes to referring to interested parties of delay, which are fixed and legally established.
Given the disparity of irreconcilable criteria thrown by these two judgments of the High Court, it is necessary that —not long after— it be pronounced again to definitively establish jurisprudence. A third sentence would be important to resolve this absolute inconsistency and to return to the channel of legal certainty.
Based on purely logical criteria, the return of undue income is restitutive in nature and not purely compensatory. Of course, said payment cannot be considered in any way as an increase in the economic capacity of the taxpayer. This principle of economic capacity, included in article 31 of the Spanish Constitution and that inferior in essence to the entire Spanish Tax System.
In reality, the obligated taxpayer will refund it if it does not satisfy the public hearing, but that income is ultimately contrary to the Law.
I hope that the Supreme Court will soon clear up the manifest inconsistency for the good of all taxpayers, as well as for the good of legal certainty referred to in article 9.3 of our Constitution. Messages like this, in the form of a sentence, the only thing they cause is to increase the distrust of investors, as well as harm the economic environment and well-being. Time will tell.
