By Antonio Tejeda Encinas. Lawyer. Techno-political analyst
Introduction: a judicial setback with a political and legal backdrop
The Audiencia Nacional (Spain’s National High Court) has recently dealt several significant blows to the Spanish Tax Agency by ordering it to repay millions of euros to economic interest groupings (AIEs, from the Spanish ‘Agrupaciones de Interés Económico’) over tax incentives wrongly refused in the Canary Islands. One of the most recent rulings, of 7 March 2025, concerns the production company behind The Cold Light of Day (‘La fría luz del día’, €5.5 million), but it was preceded by another involving an enormous sum: the Wrath of the Titans (‘Ira de Titanes’) case, which resulted in an order to repay €22.5 million. These judgments not only correct restrictive interpretations that created legal uncertainty in an industry that is key to the region’s economic diversification; they also lay bare a structural governance problem in the public administration: a State that issues digital certificates but whose agencies operate as disconnected data silos (at least in key areas where effective mechanisms for functional interoperability have yet to be deployed), unable to share basic information.
The contradiction between State bodies – with the ICAA endorsing projects by electronic signature while the tax authorities reject them as if they were worthless scraps of paper – calls into question the Government’s ability to deliver coherent policies. It is no small irony that, while the Prime Minister himself was proclaiming in 2021 his intention to make Spain the ‘Hollywood of Europe’, the administrative reality was one of poor coordination and conflicting criteria that held those ambitions back. This context gives the case obvious political relevance and serves as the starting point for a debate that goes beyond the law, reaching into institutional design and the digital transformation of the public sector.
A legal dispute over tax incentives and a lack of institutional coordination. The legal core of the case concerns the tax incentives for film production provided for in the Corporate Income Tax Act, which are especially generous in the Canary Islands because of their special Economic and Tax Regime (REF). AIEs (economic interest groupings) are legal vehicles that allow companies (or professionals) to join together to facilitate or carry on an economic activity ancillary to that of their members – in this case, to channel investment into audiovisual productions: several companies join forces in an AIE to carry out a project (here, a film) and in return may benefit from deductions in their corporate income tax.
This formula, entirely lawful and commonly used in film-making, was the one used by the production company behind The Cold Light of Day and by other international shoots on the islands. The State Tax Administration Agency (AEAT), however, maintained for years a rigid and idiosyncratic position: it denied that these AIEs were producers, and with it their right to the deductions, arguing that they lacked resources of their own and that the initiative for, and responsibility for, the production supposedly lay with foreign co-producers.
In practice, the tax authorities were disregarding the very nature of the AIE, even though the State, for its part, sanctioned and promoted it as a vehicle for film financing – an obvious paradox that one media outlet described as ‘the State protects AIEs on the one hand and on the other finds itself forced to question them’, because of the unjustified war declared by the tax authorities. This is where a failure of digital governance comes into play: the AEAT did not access the data already validated by the ICAA (electronic certificates, production reports), acting as if the two were agencies of different countries rather than parts of the same State.
This internal lack of coordination between bodies translated into penalties and multimillion-euro tax assessments against several productions, undermining the confidence of investors and creators in the incentive scheme. The legal response was not long in coming: the AIEs concerned first challenged the assessments through the administrative route (before the Economic-Administrative Tribunal), without success, and finally took the dispute to the courts.
In its judgment of 7 March 2025 (preceded by that of 29 January on Wrath of the Titans), the Audiencia Nacional found in favour of the production companies and dismantled the tax authorities’ case point by point. First, the court expressly recognised that the AIE had acted as a film producer for all purposes, rejecting the idea that it ceased to be one because it subcontracted services or shared the initiative with foreign partners. It stressed that, under the co-production agreements, the AIE had assumed full management of the film in Spain (in this case, in the Canary Islands) and therefore met the production requirements.
A key argument of the Audiencia Nacional was that the AIE had prior administrative backing: it had obtained from the Institute of Cinematography and Audiovisual Arts (ICAA) – a body of the Ministry of Culture – the certificates of Spanish nationality and cultural classification of the work, as well as the ‘Canarian audiovisual work’ certificate issued by the regional government. Those certificates officially recognised the AIE as the producer of the film and attested to its right to the tax incentive.
That the tax authorities nevertheless refused the deduction reveals a worrying lack of institutional coordination. As the Audiencia Nacional itself points out, the AEAT cannot ignore or contradict the decisions of other competent bodies of the same Administration without exceptional reasons to justify doing so. This legal principle (the single legal personality of the State) collides with technological reality: without interoperable systems, the tax authorities have no automatic access to the ICAA’s certificates, which turns coordination into an act of will rather than a technical obligation.
In support of this position, the judgment invokes principles enshrined in the Spanish legal system, such as the doctrine of ‘actos propios’ (no one may go back on their own prior acts), the principle of legitimate expectations and, very emphatically, the idea that the General State Administration has a single legal personality. By virtue of that single personality, acts issued by one body (for example, the ICAA certifying a project as an eligible cinematographic work) are binding on the other bodies of the General State Administration.
There is no room for watertight compartments or unilateral action to the detriment of third parties, especially when the legislature itself has encouraged the very scheme that the tax authorities were challenging. The Audiencia Nacional thus annulled the AEAT’s assessments, ordered the repayment of the sums wrongly withheld and set an important precedent: tax legislation must be interpreted in line with sector-specific (audiovisual) legislation, ensuring coherence and coordination between the various administrative bodies involved.
In short, the underlying legal problem turned out to be a problem of administrative coordination: the tax authorities went their own way where there should have been institutional cooperation, and the court’s correction made that plain.
Beyond the law: the institutional failure of the digital State. To reduce the matter to a legal error would be to fall short. This case exposes a structural flaw in the way the State operates in the digital age (especially where different bodies share functional powers but not integrated decision-making mechanisms): it certifies electronically on the one hand, yet acts as if those data did not exist on the other. This is not merely fiscal arbitrariness; it is a symptom of an Administration that has not learnt to govern with the digital tools it itself promotes (at least in sensitive areas such as tax incentives for the audiovisual sector, where inter-ministerial coordination is critical).
The lack of coordination between the tax authorities and the ICAA (together with the Canary Islands regional administration) is not simply a difference of legal opinion but a failure of institutional interoperability in the twenty-first century. In an increasingly digital environment, the public administration must behave as a cohesive whole, in which information and decisions flow efficiently between bodies. In Estonia, for example, the X-Road system allows agencies to share data in real time; in Spain, there is not even a protocol for the tax authorities to consult the ICAA’s certificates.
The very concept of interoperability refers to the ability of systems and processes to share data and exchange information and knowledge automatically and securely. Since 2010 Spain has had a National Interoperability Framework (Esquema Nacional de Interoperabilidad, ENI), a regulatory framework that seeks to guarantee an adequate level of technical, semantic and organisational interoperability between public administration systems. That, despite these formal advances, we still find ministries or agencies acting as isolated silos reveals a gap between the theory and the practice of public governance.
What this dispute exposes is a structural shortcoming: the Administration has digitalised its citizen-facing procedures but has still not integrated its internal workings. In the digital age, offering electronic services is not enough; what matters is that the bodies of the State work from a common base. In this case, all the elements for coordinated action were – and are – available: there were clear rules conferring powers on the Ministry of Culture (ICAA) to certify film production and on the tax authorities to grant the corresponding tax deduction, as well as legal principles of inter-administrative cooperation.
There were also electronic data and certificates that could (and should) have been shared. Yet the governance of those data and powers failed. The flow of information between bodies was insufficient or ignored; the AEAT apparently operated without regard to the files already processed by the Ministry of Culture, instead of incorporating them into its decision-making. This is the heart of the problem: digital certificates that travel as PDFs by email, not as structured data in interconnected systems.
This functional isolation (present at different levels of the Administration, although particularly visible here because of its direct economic impact) points to structural problems: disconnected information systems, a lack of effective communication protocols and, more fundamentally, an administrative culture that does not encourage cross-cutting collaboration. The result is a State that, despite having modern digital tools, still fails to act in a single, coherent way. It has digitalised the façade – online services, electronic certificates, automated procedures – but has not transformed its internal logic, where the bureaucratic inertia of the last century persists (something that still happens in many sectors, despite the regulatory and technological advances available).
This failure of institutional interoperability has serious practical consequences. On the one hand, it undermines the effectiveness of public policy: the central government was announcing tax incentives to attract film shoots and investment (as part of its economic recovery agenda and the ‘Marca España’ brand), but that policy was frustrated in its implementation by a lack of internal alignment. On the other hand, it erodes the trust of citizens and businesses in the institutions: if a company is given the green light by one State body and at the same time penalised by another, how can it trust the system?
In the midst of the digital transition, trust in the Administration depends to a large extent on its acting in a predictable, integrated and transparent manner. When that does not happen, the problem goes beyond a specific tax case and points to a systemic deficiency in governance.
In sum, the AIE dispute in the Canary Islands shows that administrative digitalisation is not enough on its own: it must go hand in hand with organisational and cultural reform. Digital certificates or advanced rules are of no use if each body continues to act on its own. Solving the problem requires technical responses – interconnected systems, shared data, automated cross-checks between bodies – but also political ones: a genuine willingness to cooperate, institutional leadership and process redesign. Only by tackling both dimensions will it be possible to prevent malfunctions like this one from recurring.
Towards coherent governance in the digital age. The case of tax incentives for film-making in the Canary Islands leaves us with important lessons and points to solutions that go beyond settling a multimillion-euro claim. The first lesson is that the State must act as a cohesive whole. It cannot afford internal contradictions in the application of its policies, least of all when it comes to boosting strategic sectors.
The recent judgments of the Audiencia Nacional have restored legality and given a boost to legal certainty in the audiovisual sector, but we should not always have to wait for the judiciary to harmonise what the Administration itself fragments. Structural reform is needed.
On the legal front, the mechanisms for inter-administrative coordination should be strengthened: for example, by expressly establishing that certificates and reports issued by competent bodies (such as the ICAA) are binding on the other bodies dealing with the same matter – something that has in fact already been written into legislation since the events in dispute. The tax authorities’ internal protocols should also be reviewed so that, before an assessment is issued in respect of incentives that are subject to another body, that body is consulted, or its previous decisions are at least formally taken into account.
On the organisational and technological front, the solution lies in promoting genuine operational interoperability. This means developing shared digital platforms on which, in cases such as film tax deductions, the various administrations involved (the Ministries of Finance and Culture and the regional governments) work from common information, avoiding duplication and contradiction. One concrete solution would be to implement a blockchain register of audiovisual certifications, in which each ICAA approval generates an immutable node visible to the tax authorities in real time.
One option would be a digital ‘one-stop shop’ for cultural incentives, so that producers and managers deal with a single system that brings together the requirements of all the competent bodies. If the ICAA grants a certificate recognising an audiovisual work as eligible for the deduction, that information should be recorded in a system that the AEAT accesses automatically at the time of an inspection, leaving no room to disregard it.
In addition, it is crucial to foster a collaborative administrative culture: civil servants must internalise the fact that they belong to one and the same Administration serving the general interest, and that coordination is not a courtesy but a legal and functional obligation. Training in digital skills and interdisciplinary work can help, but above all political leadership is needed to break down bureaucratic fiefdoms.
In conclusion, the debate is not only about how a tax law is interpreted, but about how public governance is designed in the digital age. The Canarian AIE case is a sign that our institutions need to update their interoperability and internal governance arrangements to live up to the policies they promote. It is not a question of more technology, but of less bureaucracy: a State in which data flow as smoothly as laws.
A truly digital administration is not just about having online services; it is about being able to provide coordinated, single answers, regardless of how many departments are involved behind the screen. In the long term, tackling this structural dysfunction will strengthen not only the audiovisual sector but also the State’s ability to produce coherent and reliable policies in any field. Only by moving beyond each body’s isolated approach and adopting a comprehensive vision of digital public governance will we be able to prevent malfunctions such as the one analysed here from recurring, and ensure that strategic objectives – from turning Spain into a hub for audiovisual production to any other national goal – are not frustrated by the institutional tangle itself. The solutions exist; it is now a matter of implementing them with determination and a sense of statesmanship.
