Spanish Tax Authorities can review time-barred VAT balances

The Supreme Court clarifies the scope of Article 66 bis of the General Tax Law

In judgment 988/2026 of 23 July, the Spanish Supreme Court clarified the scope of the Tax Authorities' audit powers regarding VAT balances carried forward from periods for which the right to issue a tax assessment has already become time-barred.

The dispute concerned a company subject to a tax audit in respect of VAT for the 2015-2018 periods. During the proceedings, the right to assess VAT for the first three quarters of 2015 became time-barred. The dispute arose because certain VAT balances originating in earlier periods continued to have an effect on the fourth quarter of 2015, which remained open to assessment.

The question before the Supreme Court was whether, following the amendment of the Spanish General Tax Law by Law 34/2015, the Tax Authorities may verify the existence and amount of such balances when they are used in a subsequent period that remains open to tax reassessment.

The Court answers in the affirmative and emphasizes the distinction between two separate powers: the right to issue an assessment for a particular period and the power to review items originating in earlier periods. The fact that the former has become time-barred does not necessarily extinguish the latter.

Article 66 bis of the General Tax Law establishes a specific regime for reviewing tax bases or tax credits offset or carried forward, and deductions applied or carried forward. This regime is subject to the ten-year limitation provided for in that article. Article 115 also permits audits to extend to facts or transactions relating to time-barred periods where this is necessary to determine correctly tax liabilities relating to periods that remain open.

The judgment also addresses a particular feature of VAT. VAT legislation technically refers to "balances" resulting from deductible input VAT exceeding output VAT. However, the Supreme Court considers that, in substance, those balances constitute tax credits capable of producing effects in subsequent periods. They therefore fall within Article 66 bis of the General Tax Law.

The practical consequence is significant. The expiry of the limitation period prevents the Tax Authorities from issuing a new assessment for the time-barred period. However, it does not automatically make a tax balance originating in that period untouchable where the taxpayer seeks to use it subsequently.

The Supreme Court therefore holds that such balances may be reviewed when applied in later, non-time-barred periods and verification is required to establish their existence and amount. This review remains subject to the limits and conditions contained in Article 66 bis.