1. The Tax Authorities’ Power to Review Tax Attributes for a Period of 10 Years.
In its recent judgment of 23 July 2026, the Spanish Supreme Court confirmed that the Tax Authorities may review tax attributes (tax loss carryforwards, tax credits or tax liabilities pending offset) for a period of 10 years, even where such attributes originate from statute-barred tax periods, provided that they continue to produce effects in periods that remain open to assessment.
The case examined by the Supreme Court concerned a company that had accumulated VAT balances pending offset and subsequently applied them in VAT returns relating to non-statute-barred periods subject to tax inspection. The company argued that the Tax Authorities could not review those balances because the right to assess the tax periods in which they had arisen was already time-barred.
The Court highlighted the distinction between the Tax Authorities’ power to assess taxes and their power to review and investigate tax matters. The right to regularise a tax liability through an assessment is subject to the general four-year limitation period, whereas the power to review tax attributes originating from statute-barred periods that continue to have effects in subsequent periods open to assessment is subject to a ten-year time limit.
Precisely to reinforce this distinction, the 2015 reform of the General Taxation Act (Law 34/2015) introduced Article 66 bis, establishing a specific regime for tax reviews. While the expiry of the limitation period prevents the assessment of a tax year, it does not prevent the Tax Authorities from reviewing tax attributes generated in that year where they continue to have effects in non-statute-barred periods. Accordingly, the Supreme Court dismissed the taxpayer’s appeal and confirmed, as a matter of case law, that the Tax Authorities are entitled to review VAT balances pending offset and other tax attributes generated in previous periods, provided that such review takes place within proceedings relating to periods for which the right to assess has not become time-barred.
2. The Doctrine of Incidental Discovery in Relation to Documentation Obtained Outside the Period Expressly Covered by Judicial Authorisation.
In its recent judgment of 24 July 2026, the Administrative Chamber of the Spanish Supreme Court examined whether documentation obtained during a court-authorised search relating to specific tax years, in this case 2016 and 2017, may support the reassessment and imposition of penalties for a different tax year, namely 2015, under the doctrine of incidental discovery.
In the case at hand, the Tax Authorities initiated a general tax inspection at the company’s premises in respect of the 2016 and 2017 tax years, pursuant to a court order that did not expressly limit the years covered by the search. During the inspection, documentation containing tax information relating to the 2015 tax year was seized. The relevance of that information was identified subsequently by the Tax Authorities after the search had been conducted. The company challenged the reassessment and penalties relating to 2015, arguing that the judicial authorisation had been exceeded and that its constitutional right to the inviolability of the home had been infringed. The central issue was whether the doctrine of incidental discovery could extend the admissibility of evidence to a tax year not originally authorised.
The appellant argued that the documentation relating to the 2015 tax year had been obtained without specific judicial authorisation. The Tax Authorities, in turn, contended that the court order did not expressly limit the tax years covered by the search and that the extension of the inspection proceedings had subsequently been notified to the taxpayer, meaning that no fundamental rights had been infringed.
The Supreme Court upheld the position of the Spanish Tax Agency (AEAT), finding that the inspection had been fully lawful in light of the doctrine of incidental discovery. The Court reasoned that the search warrant had been validly obtained and had not been challenged, and that the documentation relating to the 2015 tax year, although identified only after the commencement of the inspection, was directly connected with the economic activity under investigation. Accordingly, its use did not amount to a general, indiscriminate or disproportionate search. The Court also emphasised that the extension of the scope of the inspection proceedings had been duly notified to the taxpayer, thereby safeguarding procedural guarantees and the taxpayer’s rights of defence at all times.
Consequently, the Supreme Court dismissed the company’s claims and fully upheld the lower court’s judgment. Finally, the Court laid down guiding principles on the application of the doctrine of incidental discovery in tax matters, reaffirming existing case law without introducing any significant changes or qualifications to the already established judicial doctrine.
3. Tax Treatment of Foreign Employees Temporarily Assigned to Spain.
On 3 July 2026, the Directorate-General for Taxes (DGT) issued Binding Ruling V5112/2026, analysing the tax treatment applicable to employees hired by a company resident in Saudi Arabia who are temporarily assigned to Spain to perform their duties.
Under the facts submitted, the employees maintain their habitual residence, family ties, employment relationship and centre of vital interests in Saudi Arabia, and their stay in Spain does not exceed 183 days. In addition, their remuneration is paid entirely by the Saudi company, while the Spanish entity neither bears nor recharges the related employment costs. The involvement of the Spanish company in the employees’ day-to-day work is limited to certain administrative and employment-related functions.
The key issue is whether the remuneration attributable to work physically performed in Spain may be subject to taxation in Spain and, in particular, whether the Spanish company could be regarded as the employees’ true employer.
The DGT based its analysis on Article 15 of the Double Tax Treaty between Spain and Saudi Arabia, which follows the OECD Model Tax Convention. As a general rule, where an employee resident in one State (Saudi Arabia) performs employment duties physically in another State (Spain), the latter State may tax the corresponding remuneration. However, an exception applies whereby the remuneration remains taxable exclusively in the State of residence if three conditions are met: the employee’s presence in the State where the work is performed does not exceed 183 days within any twelve-month period, the remuneration is paid by an employer that is not resident in Spain, and the cost is not borne by a permanent establishment of the employer situated in Spain.
Although all three conditions appeared to be satisfied and, prima facie, taxation should therefore remain with the State of residence (Saudi Arabia), the ruling introduces an important qualification regarding the second requirement: it is not sufficient to consider only the entity formally identified as the employer under the employment contract. Following the OECD Commentary, the DGT notes that it is necessary to determine who acts as the substantive or economic employer, irrespective of the contractual arrangements formally put in place.
Relevant factors may include, among others, who directs and supervises the employee, who controls the workplace, who bears the risks and assumes responsibility for the results of the services rendered, who provides the tools and resources required to perform the work, and who determines holiday entitlement and work organisation.
The ruling also emphasises the importance of the economic structure of the relationship between the two companies. In particular, a direct recharge of employment costs may indicate that the recipient entity is, in substance, the economic employer, although the DGT stresses that this factor should be assessed together with all other relevant circumstances.
Ultimately, the significance of this ruling lies in confirming that, in the context of international employee assignments, it is not sufficient simply to verify compliance with the 183-day threshold or to identify the employer on a purely formal basis. It is also necessary to assess the substantive relationship between the companies involved and the degree of integration of the employees within the recipient organisation. Only a comprehensive analysis of all the facts and circumstances of each case will allow a reasonably robust determination of the jurisdiction entitled to tax the relevant employment income.
