The Plenary Session of the Constitutional Court yesterday unanimously declared unconstitutional several relevant aspects of the Corporate Tax reform package that the Government of Mariano Rajoy approved with a royal decree-law in 2016. The first consequence of the ruling, as they advanced sources from the Ministry of Finance, is that the Tax Agency will have to proceed to return a part of the proceeds to the affected companies.
According to financial sources, the Tax Agency faces refunds of between 2,000 and 3,000 million to large business groups that, until yesterday, had appealed the tax reform. “The umpteenth ruling of the Constitutional Court that annuls a fiscal measure approved by the previous PP Government. A bad management that all taxpayers will end up paying for,” said the first vice president and Minister of Finance, María Jesús Montero, yesterday.
The Ministry of Finance, led in 2016 by Cristóbal Montoro, approved this reform of the Corporate Tax using the decree-law with the objective of limiting the deductions from which large corporations benefited, although without modifying the nominal rates of 25% . The PP Government highlighted that the amount of collection expected for 2017 would be an additional 4,650 million. The objective was to increase income to bring Spain closer to the public deficit reduction objectives required by the European Union.
Large companies began a tax and judicial battle. The National Court raised a question of unconstitutionality and now the Constitutional Court considers that the approval of said measures by royal decree-law violated article 86.1 of the Constitution, since recourse to this regulatory instrument cannot “affect the rights, duties and freedoms of citizens.”
Specifically, the ruling recalls its established doctrine according to which the royal decree-law cannot alter either the general regime or those essential elements of taxes that affect the determination of the tax burden. The Corporate Tax is a basic tax and, therefore, the legal instrument reserved for cases of urgent need should not have been used.
The ruling establishes that, for a matter of legal certainty, the tax obligations accrued by the Corporate Tax that have already been decided by a final administrative ruling or resolution cannot be claimed. Neither can those assessments be reviewed that have not been contested before today, nor can self-assessments whose rectification has not already been requested by that date. With this decision, the Constitutional Court intends to limit the effects of the ruling, as was already done in the ruling on municipal capital gains.
The regulations declared unconstitutional have been modified after their entry into force in 2017 and, therefore, are currently not being applied.
