Order for Enforcement and Nonpayment of Taxes

FIRST, we must ask ourselves: What is the enforcement procedure? And what is an enforcement order?

What Is the Enforcement Procedure?

The enforcement proceeding is the compulsory enforcement procedure through which the government, based on an enforceable order it has issued (enforcement order), proceeds to effectively collect its public-law claim by means of individualized enforcement against the debtor’s assets.

As a general rule, taxpayers pay their taxes or tax debts in a timely and proper manner—that is, they settle their debts during the voluntary payment period (the payment period established for each direct or indirect tax assessed by the taxpayer or by the tax authority).

Even so, if you have not settled or paid your debts to the Tax Agency, you may make the payment once the enforcement period has begun, but before you receive notice of the enforcement order. In this case, the surcharge applied will be the so-called “Enforcement Surcharge,” which amounts to 5% of the debt, without requiring payment of late payment interest accrued since the start of the enforcement period, in accordance with Article 28 of Law 58/2003.

Types of Executive Surcharges

The types of surcharges are:

• Executive – 5%
• Discounted – 10%
• Regular – 20%

Cases Following the Order for Payment

If the taxpayer or party obligated to pay had not paid the debt before receiving the enforcement order, they may also pay after receiving notice of the aforementioned enforcement order; in this case, we must distinguish between:

1.- If you pay the debt within the time limit specified in the enforcement order—which is governed by Article 62, Section 5, of Law 58/2003—the surcharge will be 10% of the amount of the debt (reduced surcharge).

2.- If the debt is not paid within the time limit specified in the enforcement order, the surcharge will be 20% of the amount of the debt (ordinary surcharge), plus late payment interest accrued from the start of the enforcement period, as well as the costs of the proceedings.

Grounds for challenging the order for payment

If the taxpayer disagrees with the Tax Agency’s actions or with the enforcement order, the taxpayer may CHALLENGE the enforcement order, and to do so, the taxpayer may only invoke the following grounds for opposition, in accordance with paragraph 3 of Article 167 of Law 58/2003:

1. Complete extinction of the debt or the expiration of the right to demand payment.
2. Request for deferral, installment payment, or offset during the voluntary payment period, and other grounds for suspension of collection proceedings.
3. Failure to provide notice of the settlement.
4. Revocation of the assessment.
5. An error or omission in the content of the enforcement order that prevents the identification of the debtor or the debt subject to enforcement.

What Must Be Included in a Notice of Enforcement

Furthermore, in light of potential challenges by the taxpayer, you should keep in mind that, with regard to the content of the collection notice, Article 70 of Royal Decree 939/2005 stipulates that it must contain:

1. First and last name, or business name or full legal name, tax identification number, and address of the party obligated to pay.
2. Description, amount of the debt, and the period to which it pertains.
3. Express indication that the debt has not been paid, that the corresponding payment period during the voluntary payment phase has expired, and that interest for late payment has begun to accrue.
4. Settlement of the surcharge for the enforcement period.
5. An express demand that you pay the debt, including the reduced late-payment penalty, within the time limit specified in Article 62.5 of Law 58/2003, of December 17, the General Tax Law.
6. Notice that, if the full amount of the outstanding debt, including the reduced 10 percent late payment surcharge, is not paid within said period, your assets will be seized or existing collateral will be enforced to collect the debt, including the 20 percent enforcement surcharge and any late payment interest accrued up to the date the debt is paid in full.
7. Date of issuance of the enforcement order.

What Must Be Included in the Notice of Enforcement Order

Finally, Article 71 of Royal Decree 939/2005 provides that the notice of the enforcement order must include at least the following information:

1. Place where the debt and the surcharge are recorded.
2. Allocation of litigation costs.
3. You may request a payment deferral or payment plan.
4. An express statement that the proceedings will be suspended in the cases and under the conditions provided for in current regulations.
5. Remedies available against the enforcement order, the bodies before which they may be filed, and the deadline for filing them.

Criteria for Requesting a Stay of an Enforcement Order

At the same time, the taxpayer may also request a suspension of the enforcement proceedings, in accordance with the criteria set forth below.

In accordance with Article 165 of Law 58/2003 and Article 73 of Royal Decree 939/2005, it is possible to request the suspension of enforcement proceedings for various reasons:

1. Enforcement proceedings may be suspended in the manner and under the requirements set forth upon the filing of an appeal for reconsideration, as provided for in Article 224 of Law 58/2003, or an economic-administrative claim, in accordance with Article 233 of Law 58/2003.
2. The enforcement proceedings shall be automatically suspended by the tax collection authorities, without the need to provide security, when the taxpayer demonstrates that a material, arithmetical, or factual error has occurred to the taxpayer’s detriment in the determination of the debt.
3. Similarly, you may request that the suspension be granted automatically by proving that the debt has been paid, forgiven, offset, deferred, or suspended; or that the right to demand payment has already expired.
4. Upon the filing of a third-party claim regarding ownership, the enforcement proceedings shall be suspended with respect to the disputed assets and rights, once the appropriate protective measures have been taken.
5. If the third-party claim is upheld, the proceedings will continue until the assets are sold, and the proceeds will be held in escrow pending the resolution of the third-party claim.
6. The timely and proper filing of an administrative appeal or complaint against a penalty means that the enforcement of the penalties will be automatically suspended during the voluntary compliance period without the need to provide security until they become final through administrative proceedings, in accordance with Article 212(3) of Law 58/2003.

Order for Attachment of Income

If the Tax Agency has not collected the debt along with the corresponding penalty, the administration may seize the taxpayer’s assets and rights, and will therefore issue a Notice of Seizure of Assets; and the taxpayer may appeal the attachment order in accordance with Article 170 of Law 58/2003, which states in the General Tax Law (LGT) that “the party obligated to pay may only challenge the attachment order, either through an appeal for reconsideration or through an economic-administrative claim, on the following grounds”:

Reasons for Appealing a Credit Seizure Order

1. Extinction of the debt or expiration of the right to demand payment.
2. Failure to serve the enforcement order.
3. Failure to comply with the rules governing attachment set forth in this law.
4. Suspension of the collection proceedings.

Valuation of Seized Assets and Rights

If the appeal against the aforementioned attachment order is unsuccessful or no appeal is filed, once the assets have been attached, the Administration shall, prior to their sale, proceed to appraise the attached assets and rights either on its own or through independent experts.

Pursuant to Article 97 of Royal Decree 939/2005, the valuation shall be notified to the party liable for payment, who, in the event of a discrepancy, may submit a counter-valuation prepared by a qualified expert within 15 days from the day following the date of notification.

If the difference between the two, taking into account the sum of the values assigned by each to all the property, does not exceed 20 percent of the lower value, the value of the property shall be deemed to be the higher of the two appraised values.

If, on the other hand, the difference between the sum of the values assigned to the assets by both parties exceeds 20 percent, the party obligated to pay shall be summoned to resolve the valuation differences; and, if an agreement is reached, the agreed-upon value shall be recorded in writing and shall be the applicable value.

If the parties cannot reach an agreement, the competent tax collection authority shall request a new appraisal by a qualified expert within a period not exceeding 15 days.

That valuation must fall within the range of the previous valuations and will be the one that is definitively applicable.

When and how can debts, surcharges, interest, and costs be paid?

We should also mention that payment of debts, surcharges, interest, and costs may be made at any time prior to the sale of the seized assets, in accordance with Article 101 of Royal Decree 939/2005, which states that, to do so, the following must be paid:

1. The amount of the unpaid debt.
2. Any interest that has accrued or will accrue up to the date of deposit with the Treasury.
3. Surcharges for the enforcement period.
4. The costs of the enforcement proceeding.

Therefore, at any time prior to the sale of the assets, the tax authority will release the seized assets if the taxpayer settles the tax debt and the costs of the enforcement proceedings, as provided for in Article 172 of Law 58/2003.

Once the debt has been paid off with the proceeds from the sale of the assets, if there is any surplus remaining, the debtor is entitled to a refund of the excess amount after the debt, surcharges, interest, and litigation costs have been paid.

In cases where a debt has been declared uncollectible, enforcement proceedings shall resume—within the statute of limitations—upon learning of the solvency of any party obligated to pay.

Our Tax Department can assist you with any of these procedures. Contact us now. We’d be happy to help you.