The Constitutional Court has just declared unconstitutional the modification of the Corporate Tax approved in 2016. And this decision opens the door to million-dollar claims by companies.
It should be borne in mind that the Treasury put the increase in tax revenue resulting from this modification, which has now been overturned, at 4.5 billion euros. Globalia alone suffered an additional 4.7 million euros in its first year of application. It is estimated that, in total, the Tax Agency is facing refunds of between 2 and 3 billion euros.
Because not all affected companies will now be able to apply for compensation. Only those that have kept the procedure open until now will be able to do so. A further demonstration that having a specialised tax consultancy can make a big difference.
The Constitutional Court’s ruling imposes certain limits on companies’ claims. Tax obligations that have already been decided by a judgment or administrative ruling or that have not been challenged at the date of the ruling, or self-assessments whose rectification has not been requested at that date, may not be reviewed.
As we said, only the affected companies that have kept the proceedings open will now be able to request compensation. And even in open proceedings, the court decision will only affect the last four financial years unless the company has interrupted the statute of limitations.
In any case, most large companies have open proceedings, so they will be able to complain.
The reform of the Corporate Income Tax that has now been declared unconstitutional was approved in 2016 by means of a Decree-Law by the Ministry of Finance then headed by Cristóbal Montoro. The aim was to limit the deductions from which large corporations benefited, but without modifying the nominal rates of 25%. The ultimate aim was to increase revenue in order to bring Spain closer to the public deficit reduction targets required by the European Union.
Three changes were made so that large companies in particular would have a larger tax base on which to apply the tax rate. These are the changes introduced by the Royal Decree-Law:
The first two measures were only applicable to large companies, while the third one could affect any taxable person liable to this tax.
Following the approval of this reform, large companies began a legal battle. The National High Court raised a question of unconstitutionality and now the Constitutional Court has ruled that the approval of these measures through the royal decree-law violated article 86.1 of the Constitution.
According to the Constitutional Court, the royal decree-law cannot “affect the rights, duties and freedoms of citizens”. According to established doctrine, this instrument is reserved for cases of urgent necessity and cannot alter either the general system or those essential elements of taxes that affect the determination of the tax burden, such as corporate income tax, which is a basic tax.
The regulation declared unconstitutional has been amended since its entry into force in 2017 and is therefore not currently being applied.
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