The Plenary of constitutional Court has unanimously declared unconstitutional certain precepts that led to a tax increase sponsored by the Government of Mariano Rajoy in 2016, although the consequences of this decision will be limited. The ruling affects the corporate tax rates applied since that year, after the entry into force of a decree-law approved during the time of Minister Cristóbal Montoro.
However, and “due to the requirements of the principle of legal certainty”, the resolution declares that they cannot be considered Situations susceptible to review those tax obligations accrued by this tax that have already been established by a final ruling. Nor are those that have not been brought to court as of the date of this ruling, nor are self-assessments whose rectification has not yet been requested.
The resolution, based on a presentation by magistrate César Tolosa, considers a question of unconstitutionality raised by the National Court, which found doubts of constitutionality when deciding on an appeal against this tax. Montoro’s decree sought to increase tax collection and comply with the public deficit objectives then required by the European Union. For a large part of business owners, the regulations translated into an increase in the level of corporate tax collection.
Now, the Constitutional Court has managed to unite the criteria of its conservative and progressive judges to respond that the approval of said measures by Royal Decree-Law violates the Constitution, since through said regulatory instrument it is not possible to “affect the rights, duties and freedoms of citizens regulated in Title I. Specifically, it considers affected the duty to contribute to the support of public expenses established by the fundamental norm itself.
The Constitutional Court specifically reviews the setting more severe limits for the compensation of tax bases negative; 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.
To resolve this issue, the Constitutional goes to the doctrine that they established in 1997, which states that a decree-law cannot alter either the general regime or those essential elements of taxes that affect the determination of the tax burden.
At this point, it stands out that this tax is a basic pillar of the tax system and that the Popular Government’s rule affected both the tax base and the quota, which are an essential part of the tax structure. It is therefore concluded that the questioned precepts have had, together and considered in isolation, a notable impact in structural elements of a fundamental piece of the tax system such as corporate tax, affecting the essence of the duty to contribute of those obligated by this tax, which is why they must be declared unconstitutional and void.
Concurrent vote
He has announced the formulation of a concurrent private vote on Judge Enrique Arnaldo, who shares the rationale and ruling of the sentence, but dissents from the decision relating to the modulation of the effects of the nullity of the legal precepts declared unconstitutional. At this point, he considers that although the link between nullity and unconstitutionality does not have to be absolute, it does not have to be an exception in relation to tax regulations with the generic and solitary invocation of legal certainty.. Judge Juan Carlos Campo has not participated in the deliberation of the sentence for having abstained, the court reports.
The Court’s decision has its origin in appeals presented before said instance by various entrepreneurs through the Cuatrecasas law firm. The rule increased tax pressure on entrepreneurs, such as the automatic reversal of impairments in the value of shares, or a greater limitation on the compensation of negative tax bases for entities or tax groups with a higher net turnover to 20 million euros.
Increase in fees
These measures entailed – and continue to entail, according to the appellants – a significant increase in fees of the Corporate Tax since the year 2016. If it is declared unconstitutional, companies and tax groups could recover the fees paid derived from these measures.
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El Periódico de España, from the Prensa Ibérica group, had access to the records in which the National Court raises its doubts, and which refer to separate appeals filed by a company in the tourism sector and another dedicated to corporate printed paper. In the latter case, and despite generating losses in the 2016 financial year, the application of the royal decree meant that the tax base applied by corporate tax that year was more than 345,000 euros.
It was the consequence of the new features introduced for the automatic reversal of impairments in the value of the shares and the fact that the turnover exceeded the 20 million marked in the law, which made limitations were reduced by 50 percent in the compensation of negative tax bases.