In Judgment No. 695/2026 of June 4, the Supreme Court established a particularly significant criterion regarding tax penalties. It ruled that the mere existence of a professional services company classified as a sham does not automatically imply the use of fraudulent means—and thus does not automatically justify classifying the tax infringement attributed to the shareholder as "very serious."
It should be noted that this ruling applies directly and exclusively to tax adjustments implemented by the tax authorities on the grounds of sham transactions (Art. 16 of the General Tax Law, or "LGT"), rather than to adjustments based on the valuation of related-party transactions between the shareholder and the company (Art. 18 of the Corporate Income Tax Law, or "LIS").
The specific case involved a professional services company that, according to the tax inspectorate, lacked sufficient personnel and material resources; it was allegedly used to channel income through the corporate tax system instead of attributing it directly to the shareholder's personal income tax (IRPF). The tax authorities attributed said income to the shareholder and classified the arrangement as a sham. They also imposed a penalty for a "very serious" infringement, reasoning that the company acted as an interposed entity and that, consequently, fraudulent means were involved within the meaning of Article 184.3(c) of the General Tax Law ("LGT").
The dispute brought before the Supreme Court centered precisely on the penalty consequences of that tax adjustment. Specifically, the issue was whether a finding of a sham arrangement involving a professional services company automatically implies the use of fraudulent means—thereby allowing the infringement to be classified as "very serious" under Article 191.4 of the LGT. The Supreme Court rejected this automatic classification.
Specifically, Article 184.3(c) of the LGT requires—in order to establish the existence of this particular type of fraudulent means—that the use of an interposed person or entity be intended to conceal the identity of the true owner of the assets, rights, income, or transactions with tax implications. The Supreme Court holds that this requirement has a distinct substance of its own and cannot be presumed simply because the company used in the transaction is deemed to be a shell company or a sham entity.
One of the ruling's most significant aspects is the distinction drawn between a company used by its own partners to channel income derived from their activities and cases involving the use of nominees or third parties to conceal the true beneficial owner of that income. In the former scenario, the mere use of the company does not, as a general rule, imply concealment of the partner's identity. Consequently, even if the company lacks personnel and material resources and the activity performed is essentially personal in nature, while these circumstances may support a finding of a sham arrangement, they are insufficient on their own to establish the use of fraudulent means for the purposes of Article 184.3(c) of the General Tax Law (LGT).
The Supreme Court thus rejects any automatic application of this aggravating factor. It is incumbent upon the Tax Administration to analyze the specific circumstances of each case and prove that the company was used with the intent to conceal the partner's identity and to prevent or hinder the Administration's actions. Therefore, establishing the existence of a sham arrangement is not enough to also prove the use of fraudulent means.
Thus, classifying the infringement as "very serious" under Article 191.4 of the LGT requires specific and distinct justification. The Administration must demonstrate—beyond the mere existence of the interposed company—that the company's purpose was to conceal the true identity of the professional partner (an individual) in order to prevent or hinder the Tax Administration's actions.
The ruling does not, therefore, question the Administration's authority to adjust the tax treatment of such corporate structures deemed to be shams, nor does it rule out the possibility of sanctions for such conduct. The ruling's significance lies in preventing a mere finding of a sham arrangement from automatically triggering an aggravation of liability regarding sanctions. Applying this criterion, the Supreme Court upholds the appeal and sets aside the penalty decision, finding that the specific intent to conceal—as required by the regulation—was not sufficiently proven.
In short, the judgment more precisely defines the scope of penalties associated with tax adjustments based on sham arrangements and reinforces the safeguards required for the application of aggravating circumstances. Following this ruling, the mere use of a professional services company deemed to be a sham will no longer suffice to justify classifying the infraction as "very serious"; instead, the tax authorities must specifically prove the intent to conceal required by the General Tax Law (LGT).
It is, therefore, a criterion of undoubted practical relevance for the review of sanctions imposed within this type of structure.