The Spanish Supreme Court, in its judgment of 30 March 2026 (Contentious-Administrative Chamber, Second Section, judgment no. 401/2026, cassation appeal no. 4256/2024, rapporteur Ms María Dolores Rivera Frade), confirms that the penalty associated with the breach of article 170.Two.4 of the Value Added Tax Act (LIVA) may be annulled by the courts where it infringes the principle of proportionality of EU law, without need to refer a preliminary question to the Court of Justice nor a constitutional question to the Constitutional Court.

It is helpful to specify first the provisions at play, because the pairing is a frequent source of confusion.

Article 170.Two.4 of the LIVA classifies as an infringement the failure to report, in the VAT self-assessment for the relevant period, the amounts in which the taxpayer acts as recipient of the transactions under the reverse charge regime —the cases provided for in articles 84.One, 85 and 140 quinque of the LIVA—. The infringement therefore concerns a declarative omission with no unpaid revenue where the taxpayer has the full right to deduct the input VAT.

Article 171.One.4 of the LIVA, for its part, is the one quantifying the penalty. It does so at a fixed 10% rate on the amount corresponding to the unreported transactions, with no statutory possibility of weighting the existence or absence of economic prejudice to the public treasury.

The cassation question was whether a court may annul that penalty —quantified under a fixed rate and with no statutorily provided modulating margin— where, in the specific case, its application is found contrary to the principle of proportionality.

The Spanish Supreme Court answers in the affirmative, reiterating the doctrine already laid down in its judgments 1093/2023 and 1103/2023 of 25 and 26 July (cassation appeals 5234/2021 and 8620/2021), and 1751/2024 (cassation appeal 7826/2022). The State Counsel’s acquiescence in the present appeal reinforces the consolidated position.

The doctrine is articulated in three steps.

First, the court may annul the penalty and, accordingly, disapply the national sanctioning rule where it finds in it a breach of the principle of proportionality recognised by EU law. A breach concurs where the provision quantifies the penalty by a fixed rate, without allowing modulation, in an omissive conduct that causes no real economic prejudice to the public treasury —the typical case of the taxpayer with full right to deduction— and that is unrelated to any tax-fraud purpose.

Second, it is not necessary to refer a preliminary question to the Court of Justice. The doctrine of the CJEU itself excepts the duty of article 267 of the TFEU where there is acte éclairé, a situation perceived in this case in the light of the Farkas judgment (case C-564/2015) and Grupa Warzywna (case C-935/19), which offer explicit guidance for assessing disproportionality.

Third, it is not necessary to raise a constitutional question. Where the national court finds that the applicable rule of statutory rank may, in addition, be contrary to EU law, the reiterated criterion of the Constitutional Court —and the case law consolidated in the CJEU judgment Consorzio Italian Management (C-561/19), inspired by Cilfit— requires first raising the preliminary question or, where applicable, disapplying the rule in accordance with the clarified doctrine.

In our view, the doctrine of the Spanish Supreme Court provides an appropriate response to a structural problem of the VAT sanctioning regime in reverse charge cases. The offender who fails to report the transaction but retains the full right to deduction causes no real prejudice to the public treasury; nevertheless, the rule imposes a penalty equivalent to 10% of the unreported amount, with no possibility of modulation. That rigidity clashes head-on with the principle of proportionality that the CJEU has been reiterating since Farkas.

The practical consequence is operative. In sanctioning proceedings under article 170.Two.4 of the LIVA, the defence may directly invoke the consolidated doctrine of the Spanish Supreme Court to obtain the annulment of the penalty in contentious-administrative proceedings, without need to take the —longer and more uncertain— route of the preliminary or constitutional question. For that strategy to work, it is advisable to articulate in the statement of claim the three cumulative elements that the doctrine requires: (i) the concurrence of a reverse charge regime, (ii) the existence of a full right to deduction that excludes real economic prejudice to the public treasury, and (iii) the absence of any indicia of tax fraud in the contributor’s conduct.

In conclusion, what this new judgment of the Spanish Supreme Court makes clear is that the doctrine on the judicial disapplication of disproportionate penalties in reverse charge cases remains consolidated and operative: where the court finds disproportionality in the specific case, it may directly annul the penalty of article 171.One.4 of the LIVA without referring the matter to the Constitutional Court or to the Court of Justice.

Sources

  • Spanish Supreme Court, Contentious-Administrative Chamber, Second Section, judgment no. 401/2026 of 30 March 2026, cassation appeal no. 4256/2024 (ECLI:ES:TS:2026:1422), rapporteur Ms María Dolores Rivera Frade: poderjudicial.es.
  • Spanish Supreme Court, Contentious-Administrative Chamber, judgment no. 1093/2023 of 25 July 2023, cassation appeal no. 5234/2021 (ECLI:ES:TS:2023:3586).
  • Spanish Supreme Court, Contentious-Administrative Chamber, judgment no. 1751/2024, cassation appeal no. 7826/2022 (ECLI:ES:TS:2024:5364).
  • CJEU, case C-564/2015, Farkas, judgment of 26 April 2017: eur-lex.europa.eu.
  • CJEU, case C-935/19, Grupa Warzywna, judgment of 15 April 2021: eur-lex.europa.eu.