Published in a special issue of the official State Gazette
on September 30 2016, Royal Decree-Law 2/2016 introduced a
number of tax measures seeking to reduce the budget deficit.
The introduction of a minimum prepayment for large entities was
by far the most prominent of these measures.
Since the decree-law came into force, qualifying companies
have been required to make prepayments equal to 23% of the
income reported on their income statements for the first three,
nine or 11 months of the calendar year.
The calculation method for the minimum prepayment
contravenes the adjustments allowed in the Corporate Income Tax
Law (IS) in determining the corporate income tax (CIT). As
such, they are forced to keep exempt income in that figure and
exclude any other tax adjustments, in addition to not being
able to offset any net operating loss carried forward.
In practice, almost every qualifying company has been
required to make advance payments higher than the amounts
determined on their final self-assessment returns since the
decree-law came into force. They have also been allowed to
later obtain (generally in approximately 15 months) a refund of
the amount paid in excess (although without receiving any
financial compensation in return).
The justification for this measure was, according to the
Spanish government, the need to "gather funds immediately in
the public purse" to meet the public deficit reduction targets
imposed on Spain by the European Commission (EC).
However, in a decision dated December 14 2018, the National
Appellate Court (Judicial Review Chamber) requested a ruling on
unconstitutionality by arguing the following:
1) It crossed forbidden limits for a Royal
Decree-Law. Article 86.1 of the Spanish Constitution prohibits
royal decree-laws from regulating matters affecting certain
constitutionally-recognised rights, duties and freedoms, such
as the duty to contribute to sustaining public expenditure
under Article 31 of the Constitution.
The National Appellate Court considers that
the minimum prepayment has crossed that limit because it
alters, albeit provisionally, citizens' duties to contribute to
sustaining public expenditure. This is because taxpayers have
made a "fiscal effort" and have had to bear tax pressure higher
than the final tax liability in the period between the
prepayment and the assessment of the tax, and have therefore
been contributing over all that time to sustaining public
expenditure, which could have had:
Important repercussions on the company's financial position
and on business activity which do not cease to exist just
because a portion of what they paid is refunded to them without
2) Breach of the principle of economic
The court also held that the minimum
prepayment under Royal Decree-Law 2/2016 is completely detached
from the final corporate income tax liability, which determines
a breach of the principle of economic capacity (enshrined in
Article 31.1 of the Spanish Constitution), in that prepayments
are increased arbitrarily without having regard to actual
Due to the relevance of all these findings, the National
Appellate Court also made a passing reference in that decision
to Royal Decree-Law 3/2016 (published on December 2 2016, and
introducing, among other measures, the reversal in parts of
tax-deductible provisions/impairment losses, new limits on the
offset of net operating loss carryforwards, and certain tax
credits, together with a few restrictions on the ability to
deduct losses generated on the transfer of shares).
It also affirmed that it amends essential elements of the
tax and enters into forbidden terrain for that legislative
instrument, which could be a sign that the decree may also
breach Article 86.1 of the Spanish Constitution, at least.
Regardless of what the court's conclusion will be, there is
a need for the highest interpreter of the Spanish Constitution
to conduct a fresh review of the constitutional limits on the
use of decree-laws in the field of tax.
Additionally, it appears advisable to examine the impact
that the legislation approved through these instruments has
been able to generate on corporate income taxpayers, so that
the representatives of those companies will be able to consider
the repercussions with their advisors in the event of a
decision holding them unconstitutional.
Ángel García (email@example.com) and Isabel
Garrigues Spain, Taxand Spain