Due to the global pandemic caused by the spread of the SARS-COVID19 virus, the Government of Spain decreed a state of alarm in 2020, which meant, at the time, the closure of all types of business, professional and artistic activities except those that were considered an essential service to society. Despite the fact that this rule was lifted, in the following months measures have continued to be adopted to limit the movement and capacity of premises and businesses, which has meant, in certain cases, an impossibility to carry out the activity. Well, all this has not prevented the subjects obliged to pay the Tax on Economic Activities (IAE) from having to pay the aforementioned tax in 2020.

In this regard, it is necessary to bear in mind that the IAE is a direct tax of a real nature, whose taxable event is constituted by the mere exercise, in national territory, of business, professional, or artistic activities, whether or not they are exercised in a specific place and whether or not they are specified in the tax rates. In this way, what the IAE taxes are not the economic benefits that may be derived from the exercise of a business activity but the potential manifestation of wealth that the exercise of an economic activity supposes.

Now, in the event that it has not been possible to carry out an economic activity, as is the case in this case, due to a global pandemic, this means that there is no potential manifestation of wealth that can be taxed, so that the affected taxpayers will not they carry out the taxable event of the Tax on Economic Activities (IAE) and consequently they should not have been obliged to pay it.

And this is how the jurisprudence of our country has understood it until now, which is inclined to understand that in these cases what occurs is a non-subjection to the tax, for which they agree to return the amounts paid by the taxpayers for this concept.

For example, the Contentious-Administrative Court of Alicante No. 3, which, in Judgment No. 273/2021, of June 5, 2021, upheld the appeal filed by the taxpayer, recognizing the right to a refund of the amounts paid as IAE during the state of alarm:

“If, as we have pointed out before, the taxable event of the IAE is the exercise of an activity, if there is no activity, it cannot have been taxable and the opposite would imply taxing a non-existent economic capacity, a fictitious income. This conclusion seems even more evident when it turns out that the lack or decrease in activity is imposed by public power. It would be an unbearable contradiction for the Spanish State to demand the tax established to tax the normal exercise of an activity that those who govern it have decided to prohibit or limit in its ordinary exercise.

If the IAE is not required when the activity is paralyzed by major works decided and executed by the taxpayer himself, a majore ad minus does not make the slightest sense to think that, if the IAE is not required if it is the taxpayer himself who decides to stop his activity to carry out works, on the contrary, it is if that stoppage is not the result of his own decision, but is imposed by the public power that demands the tax, this being a clear reason why, in In the case analyzed, the previous declaration of inactivity by the taxpayer of the tax is absolutely unnecessary, which, on the contrary, seems to want to oppose it as a reason for denying the apportionment or reduction that interested in our replenishment resources.

And if, as has also been stated, the IAE is not required when the activity is paralyzed by court order or by a catastrophe (fire, flood, subsidence) or other circumstances beyond the taxpayer's control (absolute lack of water flow used as driving force, or serious breakdowns in industrial equipment), it would also make no sense to think if it is when the activity is paralyzed by imposition of the Authority as a result of a catastrophic external cause (absolutely extraordinary global pandemic) absolutely unrelated to the taxpayer . What is differential in this case is the fact that the cessation or reduction of activity is imposed by the public power itself, which gives it even greater force to the extent that, as was said,

Well, the assumption that we are now analyzing - activity paralyzed by the imposition of the Authority as a consequence of a catastrophic cause such as this absolutely extraordinary global pandemic - has in common with those that, in all of them, the taxed activity, either due to the cessation of the same or due to the concurrence of external circumstances that make it temporarily impossible, such as the stoppage by order of the judicial authority or due to a catastrophe (fire, flood, sinking) or other circumstances outside the obligor tributary (absolute lack of water flow used as driving force, or serious breakdowns in industrial equipment). In our case,what is also differential -and makes it even more deserving of not requiring the tax- is the fact that the stoppage of activity is imposed by the public power itself, which gives it even greater force to the extent that the that, as was said before, it is a contradiction, lacking any support of reason, for the State to demand an established tax to tax the normal exercise of an activity that it itself has prohibited or limited in its ordinary exercise.

For all these reasons, appealing even, as we said, to mere common sense in an exceptional situation that no one could foresee, and for a minimum principle of tax justice, we understand that the proportional reduction of the IAE quota that was interested in the appeal dismissed by the resolution now challenged, especially when its amount is not negligible and comes to aggravate, even more so, the complicated situation that is caused by a tax that is going to fall, not on a potentially income-generating activity susceptible to taxation, but, directly, on a situation of inactivity that the only thing that will generate is more losses, a situation on which that elementary principle of tax justice to which we appealed can hardly be tied.

In the same sense, the Badajoz Contentious-Administrative Court No. 2 has ruled, which, in Judgment No. 104/2021, of July 30, 2021, also upheld the appeal of a company affected by the restrictions imposed due to the state of alarm:

“And we agree with the arguments that the plaintiff maintains in this regard, which are simple common sense. It is not acceptable in terms of material justice to make companies pay taxes for the period of time that the legislative provisions that emerged during the state of alarm forced them to be closed, preventing them from carrying out their activity and causing them considerable economic losses.

Therefore, if between March 14, 2020 and June 7, 2020 the plaintiff company has not been able to carry out its economic activity, it is unquestionable that during that period of time the taxable event has not arisen, for which the Administration You cannot in any way settle the tax as if there had been commercial activity that could be taxed during those almost three months of the year 2020.

The tax is accrued when the activity subject to taxation is carried out and that activity cannot be carried out when a regulatory provision (Royal Decree 463/2020) (EDL 2020/6230) is approved that requires the closure and prevents the exercise of the activity. Article 10 of said Legal Text provided in its sections 3 and 4 the suspension of the opening to the public, among others, of hotel and restaurant activities, and the suspension of gambling and betting activities was expressly included in the Annex. casinos, group games and chance establishments, game rooms, arcades, etc., as well as those of taverns, wineries, cafeterias, restaurants, banquet halls, terraces, etc.

In short, and taking into account the principles that govern tax matters, established with clear clarity in article 31 of the Constitution (EDL 1978/3879), during the period of time between March 14 and June 7, 2020 the taxable event has not arisen, because Royal Decree 463/2020 (EDL 2020/6230) has curtailed or suspended the development of the professional activity carried out by the plaintiff company, so that during that period of time the plaintiff it has not been able to generate taxable wealth.”

In fact, this last resolution has been confirmed by the Superior Court of Justice of Extremadura which, in Judgment No. 222/2021, of December 2, 2021, has dismissed the appeal filed by the administration:

“Raised the debate in these terms, the Chamber endorses the reasoning of the judgment of instance, which does nothing but adapt all the regulations of the tax that concerns us to truly exceptional situations, not foreseen in it.

We understand the orthodox position of the defense of the City Council, but it cannot be forgotten that the forced cessation of activity, during the validity of the state of alarm, is a situation that requires decisions outside the normative orthodoxy, in order to guarantee the basic principles that govern the matter and that determine that the tax cannot be settled during the time that the taxable event has ceased to occur by normative decision, of inexcusable compliance, for reasons of public health.

The exceptional situation has led to a serious drop in income for companies, which have seen their businesses temporarily closed. The intended orthodoxy would only add more seriousness to the situation, forcing clearly excessive and undue settlements to be paid, without it being possible to require recourse to exceptional review procedures when it is still possible to adapt to the exceptional situation in the tax settlement phase.

Strictly speaking, the Administration should have taken into consideration the exceptional situation to adapt the liquidation to it, through the figure of the reduction of the quota, proportional to the days of forced closure of the activity. It is true that the tax is accrued on the first day of the tax period and the installments are irreducible (article 89.2 LRHL (EDL 2004/2992)), but it is not so unless it makes sense in the event that the registration, cancellation or suspension of the activity depends on the will of the passive subject, not when these situations are imposed by the authority exercising exceptional powers for reasons of public health. In these cases, it was obligatory for the Administration to adapt the tax to said exceptional situation, and, by not doing so, it left open the way of reversal appeal against the excessive liquidation.Forcing the taxpayer to pay a settlement that was clearly inappropriate because it was excessive, makes no sense, and violates the principle of economic capacity, without the formula of forcing her, a posteriori, to propose a review route being acceptable.”

Finally, it is worth highlighting the recent resolution issued by the Contentious-Administrative Court of Valencia No. 3, which in Judgment No. 9/2022, dated January 11, 2022, has upheld the appeal of a taxpayer who was forced to close during the state of alarm and that has subsequently been unable to carry out its activity due to the existing restrictive measures:

“Undoubtedly, in the stated period, the exercise of the activity has not taken place, by virtue of provisions adopted during it, or it has taken place with serious limitations.

This is a case of absence of a taxable event, without the plaintiff being required to formally communicate a drop in activity, which had been imposed by the same state (in a broad sense) that now claims the tax of the intended activity, and therefore it is produced ex lege, without it being, as the City Council claims, a bonus, but rather a due return, of income derived from a taxable event not produced, due to the forced reduction of the period and object of the tax.

The calculation made by the plaintiff has not been challenged, and the full estimate of the appeal proceeds.”

Based on all of the above, the taxpayers of the Tax on Economic Activities (IAE) who during the year 2020 could not carry out their activity and who despite this had to pay the IAE are entitled to a refund of the amount of said tax for an amount proportional to the period in which they were unable to carry out their business, professional or artistic activity. This right can be exercised within a period of four years from the payment of the aforementioned tax.

In conclusion: the existing jurisprudence unanimously recognizes that all those activities that have been affected in their potential business generation, either because they have been forced to close down, or because they have had significant limitations for their development, do not they must pay the IAE corresponding to the affected period.

Consequently, our advice is that the companies that consider themselves affected by what is stated here raise the possibility of initiating a procedure to obtain the fair refund of the amount paid in excess.