The Supreme Court has ruled in a recent decision in favour of a private equity manager involved in a tax raid with spontaneous interrogatories. Furthermore, in a separate ruling, the Court confirms the requirements and motivation needed to gain access to digital repositories and communications.
Background
The Spanish Tax Authorities (STA) requested and obtained judicial authorisation to access the premises of a private equity manager in Spain, with the aim of examining the accounting books, records, and other documents.
The appeal focused on the fact that the tax officers interrogated the company's employees and managers about their activities by surprise, in a hostile and intimidating environment. The taxpayer also challenged the judge's authorisation to access information contained in electronic files located in or accessible from the taxpayer's premises, arguing that such an order requires full motivation in order to ensure the protection of fundamental rights.
Case law developments
In these decisions, the Court recalls that the requirements for authorisation to enter business premises during tax raids (subject to the principles of necessity, appropriateness and proportionality of the measure) must be extended to certain specific actions that are usually carried out in the course of these procedures. These include not only potential evidence obtained through the interrogation of the taxpayer's employees, but also those measures aimed at the knowledge, control and processing of information stored on electronic devices (computers, mobile phones, tablets, memory sticks, etc.), which are protected under the rights to personal and family privacy, secrecy of communications and data protection.
The Supreme Court has expressly forbidden the practice of conducting interrogations of the staff of a company during the search of the premises in the course of a tax raid citing that such interrogations were made by surprise in a hostile and intimidating environment. This clarification comes as a response to concerns over potential abuse during raids, ensuring that any communication between inspectors and those present at a business premises during the raid must be voluntary and without pressure, in order to safeguard the right of defence of the company.
Naturally, there is a general obligation for management and staff to collaborate with tax inspectors in the context of tax audits. However, the Supreme Court remarks the liability for the STA to conduct any interrogations in accordance with general procedural requirements established for interrogations, including advance notice to the relevant individuals, and notification of an appointment for the interrogation to be generally at the premises of the competent tax authority.
In addition, the Court has reiterated the strict requirements applicable to the access to computers and digital equipment during raids, which should be guided by a careful consideration of the nature of the data, its relevance to the business or professional activities of the entity, and the rights of the data owner, whether an individual or a corporate entity, with the aim of safeguarding fundamental rights that may be affected by the intrusion into digital privacy.
Comment
These recent developments should be seen as a further step towards the consolidation of a more rights-respecting approach providing a better framework and setting clear limitations during the course of raids. However, there is room for development in this field as tax raids are becoming increasingly common in Spain and usually involve many uncertainties regarding the substantive and formal validity of the specific actions taken by the STA in such circumstances and the extent of the taxpayer’s legal rights.
In the course of tax raids, it is important to ensure that any action taken by the STA is legally justified. On the other hand, maintaining a reasonably cooperative attitude to facilitate the process and avoid escalation is also important. Where possible, engaging a tax expert to monitor the raid process in real time is advisable to ensure an immediate response capability to any legal issues or irregularities that may arise during the raid. This proactive measure can significantly mitigate potential legal repercussions and ensure that the taxpayer's interests are robustly defended.
