Barcelona refunds taxes to four companies for an illegal inspection

The courts have forced Barcelona City Council to refund tax payments to two companies (two more are pending) because a subcontracted company intervened during the inspection. In 2014, the City Council signed a contract with the company Colaboración Tributaria to provide support during tax inspections. This practice has been deemed irregular by the courts and has forced the City Council to return the assessments and penalties for the Economic Activities Tax (IAE) to two companies, while two more are awaiting a similar ruling from the courts.

Last year, Barcelona City Council had to return €105,661.70 and €528,923.39 to Bauhaus, through its two companies Hágalo SA and Werkhaus, respectively, corresponding to the 2016 financial year. In addition, two other companies, Seat and Audi, have filed similar claims and are awaiting reimbursement of their contributions.

Bauhaus has successfully repaid its 2016 taxes, and SEAT and Audi are awaiting similar rulings.

A ruling issued last year by the Administrative Litigation Division of the Superior Court of Justice of Catalonia (TSJC) forced the City Council to refund the amounts, finding that the inspection was void because a subcontracted company had been involved in performing tasks that only a public official can perform. After the entanglement and the legal setback, the City Council stopped subcontracting this service, and currently there is no outsourcing to provide technical support for tax inspections, according to municipal sources.

In this case, Tax Collaboration personnel visited the Bauhaus warehouse in the Free Trade Zone, requested the presence of the company representative, and signed a report with the data to proceed with the measurement and verification of the type of activity carried out. One of the subcontractor employees' main tasks was to verify the installed capacity of the industrial equipment, the data of which is essential for calculating the IAE tax. The information gathered served as the basis for the subsequent inspection procedure. This was an administrative act carried out without the presence of an official.

The subcontracted company was supposed to assist in preparing the settlements, but without actually drawing up minutes, as that is the exclusive responsibility of civil servants. However, the contract specifications contained several indications that questioned whether its role was limited to just that. One of its functions was to draft the Regularization Proposal and prepare the relevant report, which would include the day of the visit, the identification of the person appearing as an interested party, their position within the company, review the allegations, and formulate and draft a proposed response.

A parallel structure in the shadow

Ruling 1357/2024, issued by the Contentious Chamber of the TSJC (High Court of Justice) is devastating. The reporting judge, Eduardo Rodríguez Laplaza, criticizes the City Council for creating a parallel, "shadow" inspection structure by granting authority to a subcontracted company to carry out tax inspections. He describes this maneuver as an "illegal exercise," which "hands over the exercise of public functions to private law" by assigning them to an external company. He points out that inspection functions are "non-waivable and non-delegable."

Bauhaus appealed to the court, believing that the subcontractor's employees had exceeded their authority, and the court ruled in its favor. The High Court of Justice (TSJC) argued that "the exercise of authority" cannot be granted to a private individual and is the responsibility of career civil servants. Indeed, it emphatically emphasizes in a paragraph that "in certain municipalities, a fraudulent practice is being consummated, with private companies performing genuine inspection functions under the guise of mere support. They carry out tasks that only the tax administration can perform." And it concludes: "the defense of the public interest and the fight against tax fraud are constitutional mandates directed at the actions of public authorities, not subject to transfer to private activity."

Barcelona hasn't been the only municipality to receive a judicial setback for outsourcing part of its inspection service. Others, such as Las Rozas, Valladolid, Amurrio, and Legutio, have received similar rulings.