Court decrees historic tax collection changes to be unconstitutional

Whilst representatives of the PP party in Spain have unsuccessfully taken the current socialist plans for taxing the rich to court, some of their own taxation practices have been declared unconstitutional by the courts.

Specifically, the Constitutional Court (TC) has unanimously agreed to declare as unconstitutional some measures of the royal decree-law approved in 2016 by the Government of Mariano Rajoy to increase collection through Corporate Tax, considering that this type of modification cannot be introduced via Royal decree law.

As reported by the court, the Plenary has given its approval to the presentation by magistrate César Tolosa by which the question of unconstitutionality raised by the Contentious-Administrative Chamber of the National Court on Royal Decree-Law 3/2016, of December 2, which adopts measures in the tax field aimed at consolidating public finances and other urgent measures in social matters.

The magistrates have understood that the approval of a measure of this type to increase collection through Corporate Tax violates the Constitution, since through a royal decree-law it cannot “affect the rights, duties and freedoms of citizens”. Likewise, 10 of the 11 members of the Plenary – one has abstained from this matter – have considered that the duty to contribute to the support of public expenses established by Magna Carta has been affected.

The modifications to the Corporate Tax referred to in the TC include the establishment of more severe limits for the compensation of negative tax bases; the introduction ‘ex novo’ of a limit on the application of deductions for double taxation; and the obligation to automatically include in the tax base the impairment of shares that have been deducted in previous years. The first two measures are only applicable to large companies, while the third can affect any taxpayer of this type of tax.

In this sense, the court of guarantees has reiterated its doctrine, in which it establishes that a decree-law cannot alter either the general regime or those essential elements of taxes that affect the determination of the tax burden, which must be assessed depending on the tax concerned, the elements affected by the modification and its scope.

Thus, the magistrates have concluded that the challenged measures have had a “notable impact” on structural elements of a fundamental piece of the tax system such as the Corporate Tax, affecting the essence of the duty to contribute of those liable for this tax, which is why it has determined that they should be declared unconstitutional and void.

This is not the only reason the Rajoy Government has been in the news recently, with some Spanish media sources reporting on significant findings that point to corrupt practices, although they are still just allegations at this point.

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