Taxable Events, Exemptions, and Liability Termination
Taxable Event, Non-Liability, and Exemption
The taxable event is the circumstance defined by law that triggers the obligation for the taxpayer to make a coercive economic contribution. Its occurrence legally binds the taxpayer to the tax payment obligation, as defined in Article 20 of the LGT (General Tax Law).
The taxable event is the specific situation established by law for each tax, and its occurrence gives rise to the main tax obligation. The law may refine the definition of the taxable event by referencing cases of non-liability. Thus, the taxable event serves not only as the identifier for each tax but also as an indicator of economic activity. It is essential that every taxable event reflects the existence of economic capacity, which is a prerequisite for taxation.
Non-liability occurs when the defined taxable event does not happen, or when the specific law explicitly states that the situation falls outside the scope of the tax. There is a subtle but important distinction between non-liability and exemption. While both result in the release from the tax obligation, they operate differently.
A tax exemption applies when, despite the taxable event occurring, the law relieves the taxpayer from paying all or part of the tax in specific circumstances. Even though the conditions for the tax are met, the payment obligation is not generated. This is regulated in Article 22 of the LGT. Exemptions represent an exception where two rules apply simultaneously: one rule subjects certain events or persons to the tax, and another rule exempts some of those specific cases from the payment obligation.
Tax Liability of Entities Without Legal Personality
Article 35.4 of the LGT states: “The following are considered taxpayers, as established by law: vacant inheritances, jointly owned property, and other entities which, lacking legal personality, constitute an economic unit or a separate estate subject to taxation.”
The question arises regarding the assignment of tax capacity to entities that do not possess formal legal personality. In principle, such assignment is permissible provided it is established by law and refers to entities possessing some form of organization. Since these entities may lack the specific internal governance rules typical of legal persons, the principle of legal certainty requires the tax system to specify who represents these entities in tax matters.
This involves identifying who can act on their behalf in the various legal relationships that arise. Accordingly, Article 45.3 of the LGT indicates that for the entities mentioned in Article 35.4, the person who demonstrably holds their representation acts on their behalf. In the absence of such a person, the individual acting as manager or de facto representative acts. If no such person exists, any member or participant of the entity may act.
Termination Methods for Tax Liability
Like any obligation, tax liability expires upon fulfillment. The primary method of termination is payment made within the voluntary period. According to Article 60 of the LGT, payment can be made:
- In cash.
- Through regulated financial instruments (e.g., certified checks, bank transfers – often referred to as ‘effects’).
- In kind, where specifically permitted by law (e.g., delivering designated historical heritage assets under regulated terms).
However, as stated in Article 59 of the LGT, tax debts can also be extinguished by other means, including:
- Prescription: The right of the tax authority to demand payment expires, typically after four years, as established in Article 66 of the LGT.
- Compensation: Offsetting the tax debt against credits recognized by an administrative act in favor of the same taxpayer.
- Condonation (Remission): Debt forgiveness granted only under specific legal provisions and circumstances (e.g., following natural disasters).
- Other means prescribed by law.
Note: Procedural expiration (caducidad), which relates to the expiry of deadlines within a specific administrative procedure, does not extinguish the underlying tax liability itself, unlike prescription (prescripción).