B Law & Tax
02 February 2024

Tax Advisor: Unconstitutionality of fiscal measures in the Corporate Tax

The Full Court of the Constitutional Court responds to the question of unconstitutionality raised by the Administrative Litigation Chamber of the National Court regarding the modifications to the Corporate Income Tax (CIT) introduced by Royal Decree-Law 3/2016, of December 2, with the aim of increasing revenue and reducing the public deficit. The judgment, which has not yet been published in the Official State Gazette (BOE), is still pending resolution of several appeals from taxpayers affected by the mentioned Royal Decree-Law.

The Court determines that the approval of these measures through a Royal Decree-Law has violated Article 86.1 of the Spanish Constitution, as this type of regulation cannot “affect the rights, duties, and freedoms of citizens regulated in Title I.” The obligation to contribute to the support of public expenses, established in Article 31.1 of the Constitution, is considered particularly affected.

Which measures contained in the Royal Decree-Law does the Constitutional Court annul?

The examined modifications to the Corporate Income Tax (CIT) include: stricter restrictions for offsetting negative taxable bases; a new limit for applying double taxation deductions; and the obligation to automatically include impairments of participations that were deducted in previous years in the taxable base.

These measures were primarily aimed at large companies, except for the last one, which had the potential to affect any Corporate Income Tax (CIT) taxpayer. However, the other provisions have not been annulled, so even though they may be challenged and eventually declared unconstitutional if questioned, they remain in force and can be subject to challenge.

The Constitutional Court has argued that these modifications affect fundamental aspects of the CIT, such as the taxable base and the quota, influencing the determination of the tax burden and having a significant impact on an essential component of the tax system. Additionally, it has recalled the connection with Royal Decree-Law 2/2016, previously declared unconstitutional for the same reason in Constitutional Court Judgment 78/2020, which increased advance payments of CIT for large companies.

In this regard, the judgment reaffirms its established doctrine in Judgment 182/1997, stating that a decree-law cannot modify either the general regime or essential elements of taxes that affect the determination of the tax burden. The judgment verifies that the CIT is fundamental in the tax system, the modifications affect essential elements of the tax, and the introduced changes are significant, as confirmed by the revenue impact forecasts provided by the Government.

Limitations on the scope of the judgment. Does the judgment have total retroactive effects?

According to Article 9.3 of the Constitution, for reasons of legal certainty, the judgment states that tax obligations accrued by the Corporate Income Tax that, at the date of the judgment, have been definitively decided by a judgment with the force of res judicata or by a final administrative resolution cannot be revised.

Unchallenged settlements at the date of the judgment and self-assessments whose rectification has not been requested at that time cannot be revised either. This means that only companies that have appealed settlements or requested the rectification of self-assessments before the publication of the judgment in the Official State Gazette (BOE) can benefit from the annulment of the Royal Decree-Law.

The decision of the Constitutional Court establishes a significant precedent in constitutional jurisprudence regarding the use of decree-laws in tax matters, providing relief to companies for the recovery of undue payments by the Corporate Income Tax or the reduction of their pending tax debt. In this regard, it is essential to await the full content of the judgment once it is released.

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