How to negotiate with the Spanish Tax Authorities: deferrals, payment by instalments and payment arrangements

The expression “negotiating with the Spanish Tax Authorities” should be treated with some caution. The Spanish Tax Agency (Agencia Estatal de Administración Tributaria – AEAT) does not negotiate in the commercial sense of the term. Rather, taxpayers have a statutory right to apply for the payment of a tax debt to be deferred or paid by instalments where they are experiencing temporary financial difficulties.

In practice, however, the way in which an application is prepared, the proposed payment schedule, the security offered and the procedural stage at which the request is submitted may determine whether the application is granted promptly or refused, requiring the process to start again from the outset. This article examines the three principal mechanisms available for managing tax liabilities where cash flow is under pressure: deferral of payment, payment by instalments, and, more exceptionally, other methods of settling tax debts.

The difference between deferral of payment and payment by instalments

Although the two concepts are often used interchangeably in everyday language, the legal distinction has practical consequences.

A deferral of payment (aplazamiento) postpones the due date of the tax debt, which remains payable in a single lump sum at a later date.

By contrast, payment by instalments (fraccionamiento) allows the total amount outstanding to be divided into several successive payments falling due on different dates.

Both mechanisms are jointly governed by Article 65 of Law 58/2003 of 17 December (the General Taxation Act – Ley General Tributaria (“LGT”)), and are further developed in Articles 44 to 54 of the General Collection Regulations (Reglamento General de Recaudación – “RGR”), approved by Royal Decree 939/2005.

When can a deferral or instalment arrangement be requested?

Article 65(1) of the General Taxation Act establishes the substantive requirement:

A taxpayer may apply where its financial and economic circumstances temporarily prevent payment of the tax debt within the applicable statutory deadline.

If the documentation submitted demonstrates that the taxpayer’s financial difficulties are structural rather than temporary, the AEAT may reject the application even where all formal requirements have been satisfied. Indeed, failure to demonstrate that the liquidity constraints are merely temporary remains one of the most common grounds upon which applications are refused.

Tax debts that cannot be deferred

Not every tax liability qualifies for deferral or payment by instalments.

Article 65(2) of the General Taxation Act expressly excludes:

• Tax debts collected by means of stamped fiscal documents.
• Tax liabilities corresponding to withholding obligations or obligations to make advance tax payments on behalf of third parties.
• Debts which, where the taxpayer is subject to insolvency proceedings, constitute claims against the insolvency estate.
• Debts arising from the enforcement of decisions requiring the recovery of unlawful State aid under Title VII of the General Taxation Act.
• Debts arising from the enforcement of final decisions dismissing, in whole or in part, an administrative tax appeal or judicial review proceedings where the debt had previously been suspended during those proceedings.
• Taxes that must legally be passed on to third parties, unless it can be duly demonstrated that the amounts charged have not actually been paid by those third parties.
• Advance payments of Spanish Corporate Income Tax that taxpayers are legally required to make.

The €50,000 threshold

Since 15 April 2023, following the entry into force of Ministerial Order HFP/311/2023 of 28 March, taxpayers are no longer required to provide security when applying for a deferral or instalment arrangement where the aggregate amount of all outstanding tax debts for which deferral is sought does not exceed €50,000.

This Order increased the previous threshold of €30,000, which had been in force since 2015, and was accompanied by two instructions issued by the Collection Department of the AEAT, extending the maximum repayment periods available under the automated application procedure:

• up to 24 months for individuals; and
• up to 12 months for legal entities,

compared with the previous limits of 12 and 6 months respectively.

For debts below this threshold, applications submitted electronically are generally processed almost immediately. In practice, this makes the procedure the preferred option for SMEs and self-employed taxpayers experiencing temporary cash-flow difficulties.

However, the substantive assessment remains unchanged. The AEAT may still reject an application where it identifies previous defaults, outstanding enforcement debts that have not been regularised, or a proposed repayment schedule that is not considered feasible.

Accordingly, remaining below the €50,000 threshold merely removes the requirement to provide security; it does notguarantee that the application will be approved.

Where the amount exceeds that threshold, the taxpayer must provide security. This may take the form of a joint and several guarantee issued by a credit institution or a mutual guarantee society (sociedad de garantía recíproca), a surety bond insurance certificate or, failing that, a mortgage or other assets meeting the requirements laid down in Article 82 of the General Taxation Act.

The same reform also extended the maximum repayment periods available in such cases: up to 60 months where the security consists of a bank guarantee or surety bond insurance, and up to 36 months where unencumbered urban real estate is offered as security.

Example of an instalment arrangement for a tax debt

A company with combined VAT and Corporate Income Tax liabilities amounting to €45,000, arising after a weak quarter caused by the non-payment of two major customers, may apply to pay the debt by instalments without providing security, as the total amount falls below the applicable threshold. As a legal entity, it may benefit from an automated repayment schedule of up to 12 months.

Default interest will accrue on that amount pursuant to Article 26(6) of the General Taxation Act, currently set at 4.0625%, as opposed to the statutory interest rate of 3.25%, which would apply if the entire debt were secured by a joint and several bank guarantee, in accordance with Article 65(4) of the General Taxation Act. Both rates remain in force as a consequence of the extension of the 2023 State Budget, pending the enactment of new legislation updating them.

The cost of late payment: interest and surcharges

Submitting an application for a deferral or an instalment arrangement during the voluntary payment period prevents enforcement proceedings from commencing. However, it does not stop default interest from accruing (Article 65(5) of the General Taxation Act).

Where the application is submitted after the voluntary payment period has expired, the Tax Administration may continue the enforcement procedure while the application is being processed. Although it must suspend the disposal of any seized assets until a decision has been reached, default interest will continue to accrue and any enforcement surcharges already incurred during the enforcement period will also remain payable.

For that reason, it is essential to submit the application within the voluntary payment period whenever possible, thereby avoiding both enforcement surcharges and the commencement of attachment proceedings.

If, after a deferral or instalment arrangement has been granted, the taxpayer fails to make any scheduled payment, the consequences are significant. The AEAT may revoke the arrangement in its entirety and demand immediate payment of the outstanding balance, together with the applicable enforcement surcharge, which may reach 20%, and all accrued default interest.

Accordingly, the repayment schedule should be carefully structured from the outset, as the financial consequences of missing a single instalment are often considerably greater than those which the taxpayer originally sought to avoid by requesting the deferral or instalment arrangement.

Other ways of managing a tax debt

Deferral and payment by instalments are the mechanisms most commonly used to manage tax debts, but they are not the only options that should be considered when designing a payment strategy in relation to liabilities owed to the Spanish Tax Authorities.

Set-off, governed by Articles 71 to 73 of the General Taxation Act, allows tax liabilities to be discharged against credits which the taxpayer has recognised against the Tax Administration, such as a pending tax refund, whether claimed by the taxpayer or initiated ex officio by the Administration.

This mechanism may eliminate the need to apply for a deferral where, for example, the taxpayer is awaiting repayment of a tax refund.

Conclusion: how to manage a deferral or payment by instalments

Ultimately, there is scope to “negotiate” with the Spanish Tax Authorities, but only within a highly regulated legal framework. The applicable requirements, deadlines and security arrangements are determined by statute and by the internal guidance issued by the AEAT, rather than by the negotiating skills of the applicant.Accordingly, it is essential to choose the most appropriate mechanism, whether a deferral of payment or payment by instalments, to ensure that the proposed repayment schedule accurately reflects what the taxpayer can realistically afford, and to submit the application during the voluntary payment period wherever possible.

In our experience, this is the most effective way of avoiding the majority of the issues that typically arise.

FAQs on deferrals and payment by instalments

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