The IAE: a tax that requires constant updating by specialists in the field

El IAE It is settled from the registration that is prepared annually by the AEAT; with the tax elements declared by the taxpayer in the census declaration. Precisely, the fact that the IAE registration is managed from the taxpayer declaration This often causes them to forget to update the tax elements, which can lead to taxes not being paid in accordance with the physical, economic and legal reality of the entity. Thus, one of the circumstances described below may occur:

1) That excessive taxes are being paid, in which case the tax elements have not been duly declared or updated. This situation may occur when, for example, certain machinery is no longer used or the industrial fixed assets are modified, producing a variation in the installed power in the industry. Likewise, the case may arise in which the surface area of the premises in which the economic activity is carried out is no longer affected by it, or that, as a consequence of a reform in a hotel establishment, the number of rooms is reduced; as well as the surface area to which prior to the same no reduction was applicable, due to the change of use or destination, becomes so and the tax element
surface area decreases. In each and every one of these cases, the entity should communicate the changes to the Administration in the declaration so that its taxation is adjusted to the new physical, economic and legal reality. If this is not done, it would lead to continued excess taxation in accordance with the previously existing reality, which would lead to excess taxation for years and years.

2) That the resulting liquidations are lower than what they should be, for having ignored various tax elements that should have been declared. This situation is common when the facility in which the economic activity is carried out is expanded, and the declaration of the new surface area resulting from said expansion is ignored or when new machinery affecting the manufacturing process is acquired, and the declaration of the increase in the nominal power of said machinery may be forgotten, which must be brought to the attention of the Administration. In this case, therefore, objective circumstances may arise for the tax Administration to initiate an inspection and/or sanctioning procedure. Thus, in addition to the economic contingency generated by lower taxation than that which should have been declared, there is the possibility that supplementary liquidations for the years not prescribed may be issued, as well as the imposition of possible sanctions and late payment interest that may have been accrued. Not considering economic contingencies and, therefore, the risks in the income statement, may lead to major financial problems.

The calculation of tax elements is sometimes complex and requires a high level of specialization in this tax figure. In addition, both the Revised Text by which the Regulatory Law of Local Treasuries, like the other regulations governing the IAE, are constantly modified by the General Directorate of Taxes, in its binding consultations; as well as by the High Courts of Justice. Thus, in the case of production activities, the main tax element to be taken into account is the installed power affecting production. There are many occasions in which, due to ignorance of the regulations, this tax element is not declared correctly; as occurs with the computable surface area of the premises, where the assignment of the different categories is essential to know the valuation of said tax element.

Thus, poor advice or simple ignorance of the legal regulation, jurisprudence and doctrine applicable may lead to considerable economic damage for the company. It is quite common for companies to pay the amount of the liquidation without carrying out a technical analysis and, therefore, without ensuring that the classification of the activity in the section under which it is registered is correct; that the tax elements are quantified in accordance with the Law and that the different tax benefits that, at their discretion, the City Councils may establish in their tax ordinances are requested and applied.

Damaso Hornero Gallardo.

Project Manager Local & Indirect Taxes.