Supreme Court Strikes Down Disproportionate Tax Penalties: A Shift in Case Law

Introduction

A recent Supreme Court judgment handed down in June 2025 marks a turning point in tax penalty law. The Court has held that penalties imposed by the Tax Agency that are objectively disproportionate breach the principle of proportionality under Article 31 of the Spanish Constitution and may be annulled even where the offence is formally defined in the legislation in force.

1. The case decided by the Supreme Court

In the appeal decided by the Supreme Court’s Administrative Chamber on 12 June 2025, the taxpayer received a fine twice the amount of the loss caused by an error in tax classification. The Court considered that the penalty lacked objective proportionality and breached the principle of substantive justice.

2. A significant change in case law

The judgment recognises that courts may annul a disproportionate penalty even where the General Tax Law does not provide for a specific reduction in such cases. This opens the door to reviewing hundreds of automated penalty proceedings based solely on quantitative criteria.

3. Constitutional and European basis

The Supreme Court relies not only on Article 31 of the Constitution, but also on Article 49 of the EU Charter of Fundamental Rights and the Court of Justice of the European Union’s case law on proportionality in penalties. This strengthens alignment between Spanish tax law and European law.

4. Which penalties could be affected?

• Penalties of 50% to 150% for failing to pay tax due.
• Automatic fines for errors in information returns, such as Form 720.
• Maximum penalties imposed without individual reasoning.

5. Practical implications

Taxpayers may request a review of penalties imposed in recent years if they consider them disproportionate. This criterion could be raised in a reconsideration appeal, an economic-administrative complaint before a regional or central tribunal (TEAR or TEAC), or in court.

6. Other relevant sources and expert commentary

• Recent opinions from the Council of State on proportionality (2023–2024).
• Commentary from AEDAF and the General Council of Economists.
• CJEU case law in cases C-210/10 and C-648/20.

7. Conclusion

This Supreme Court judgment consolidates a more taxpayer-protective approach in Spain’s tax penalty system by recognising that legality alone is not enough when proportionality is absent. Penalties must bear a reasonable relationship to the actual seriousness of the conduct. Taxpayers penalised in similar circumstances now have a new route to challenge the fine and defend their rights.

Read the original article in Spanish