Taxable Event: Concept, Functions, and Non-Liability Cases

Tax Elements: The Taxable Event

Concept and Functions of the Taxable Event

Article 20.1 of the LGT defines the taxable event as the legal budget established by law to set each tax, and whose conduct causes the birth of the principal tax liability (i.e., the obligation to pay a tax). The taxable event is the fact that the legal budget, because the law considers that it demonstrates economic capacity, determines the obligation to pay a tax.

The taxable event serves several functions:

• Genesis of Tax Liability: It determines the genesis or birth (accrual) of the principal tax liability because it incorporates within it a manifestation of economic capacity.
• Identifying Element: It is the identifying element of the charge. It is common for taxes or other tax figures, in general, to be defined by mentioning their taxable event. For example, the Individual Income Tax levies the income obtained by individuals, and the Inheritance and Gift Tax levies certain subjects when they receive assets through a mortis causa succession or an acquisition by donation.

Sometimes, in complex taxation, the expression "taxable event" refers to various concrete manifestations of the general taxable event or specific charges in question. For example, although the general taxable event is obtaining income, colloquially, one speaks of obtaining taxable income from work or obtaining income through capital gains, as these are specific facts within a more complex framework that help in understanding them and others.

Cases of Non-Taxable Events

Article 20.2 of the LGT provides that the law may determine the scope of the taxable event by reference to non-taxable cases.

Non-taxable events are outside the chargeable event and, therefore, do not generate tax liability. Nevertheless, for purely explanatory reasons, it is common for tax rules to make references to non-taxable cases. These references are purely didactic or explanatory, in the sense that they refer to situations that may pose questions to the interpreter, and which the law seeks to clarify. If there were no regulations defining these non-taxable circumstances, the consequences regarding the lack of accrual of the tax would be identical.