Public Finance and Tax Law: A Comprehensive Overview
Item 1: Financial Activity
Financial Activity in Public Bodies
Public bodies undertake various financial activities. RodrÃguez-Bereijo of UAM defines this as the state’s drawdown of private households’ income and its subsequent use as public expenditure.
Bayona and Soler of the University of Alicante further define financial activity as meeting public needs using economic means under political criteria.
Characteristics of Financial Activity
Aliana and Navarro, citing Faure, outline six key features of financial activity:
- Developed by public bodies.
- Focuses on income and expenditure.
- Instrumental in nature, enabling other public activities.
- Economic content in all related actions.
- Subject to planning (e.g., annual government budget).
- Subject to internal and external control.
Item 2: Public Heritage (HP)
Doctrinal Concept of HP
Sainz de Bujanda proposes three approaches to defining public heritage:
- Subjective: The body carrying out financial activities.
- Purpose: All property and rights under public ownership.
- Functional: The financial activity itself.
Legal Concept of HP
The General Appropriations Act defines public heritage as the set of economic rights and obligations owned by the state administration and its autonomous bodies. This definition highlights three features:
- Public ownership by a public law entity.
- Active and passive aspects (rights and obligations).
- Economic content.
Item 3: Financial Law
Concept of Financial Law
Financial law is the branch of public law regulating the financial activities of the state and other public bodies. Bayona and Soler define it as the branch studying the organization of public heritage and the functions of public entities in managing assets to meet collective needs.
Content of Financial Law
The core content of financial activity is the income-expenditure relationship.
Item 4: The Public Budget
Concept and Historical Development
The public budget is an economic and legal document reflecting a public agency’s planned annual financial activity.
Its historical development began in the 12th century with the Castilian crown seeking authorization from the Cortes of Castile for taxation. This established the principle of self-imposition of tax burdens. The rise of absolute monarchies saw a decline in financial doctrine, but the 15th century introduced constraints:
- Not exceeding permitted taxation.
- Using proceeds only as planned.
- Not maintaining taxation beyond projected needs.
Liberal states, with their constitutions and division of powers, saw the budget’s significance grow. Legislative approval of the executive’s budget became standard. In Spain, an 1811 decree established separate ministry budgets, and the 1812 Constitution emphasized legality and balance.
Budgetary Principles
Traditional budgetary principles include:
- Budgetary Unit: All financial activity reflected in a single budget.
- Universality: Inclusion of all revenue and expenditure.
- Expertise: Expenses allocated for their intended purpose.
- Seasonality: One-year scope.
- Balance: Equality between income and expenditure.
The emergence of tax systems led to a shift from annual authorization for tax collection to continuous application of legislatively approved taxes. Sainz de Bujanda termed this the bifurcation of the principle of financial legality.
Content and Structure of the General State Budget
The General State Budget, according to the Constitution and the General Appropriations Act, must systematically present income and expenditure. It is approved by organic law and has significant political and legal implications, affecting expenditure rules, salary policies, and taxation changes.
The budget includes all public sector income and expenditure, along with supporting documentation (reports, programs, policies). Its structure comprises a preamble, articles, and income and expenditure statements. Four classifications are used:
- Organic: Distribution of income and expenditure among management centers.
- Economic: Grouping of funds by economic class (capital flows, capital operations, financial operations).
- Functional and Program: Distribution of costs according to function and objectives.
- Territorial: Distribution of costs by territory.
Effects of the General Appropriations Act on Income and Expenditure
The General Appropriations Act limits expenditure appropriations. Obligations can arise even without budgetary provision, but payment requires it. Valid obligations cannot be met if credits expire. Special effects on expenditure include exceptional credits, reserved expenses, and obligations for certain expenditures.
For income, the General Appropriations Act establishes the accrual of recognized rights. The primary source is taxation, and the Act refers to other legal regulations for specific income types.
Item 5: Budgetary Procedure and Control
Budgetary Procedure
The Constitution defines the roles of the Government and Parliament in the budget cycle: preparation, approval, implementation, and control. The Government handles preparation and implementation, while Parliament handles approval and control.
The preparation phase involves setting the fiscal stability goal, developing multi-year budget scenarios, and drafting the budget bill. The approval phase involves parliamentary debate and approval of overall amounts, followed by committee review and final approval. The implementation phase involves obtaining revenue and executing expenditure. The control phase involves accounting and reporting of budgetary results.
Budget Control
Budget control covers various aspects, including scope (objective, subjective, temporal), character (constitutional, objective), and purpose (verifying proper management of public funds). Control types include internal and external, legality and timing, efficiency, and prior, simultaneous, and posterior.
Item 6: Tax Law
Concept, Origin, and Classification
Tax law regulates taxation. It originates from the modern concept of tax, evolving alongside legal principles and methods. Classifications include material/substantive, formal/administrative, special (specific taxes), and general.
Legal Nature of Tax
Tax is a cash benefit arising from a legal relationship between two subjects: the entity with enforcement power (the Treasury) and the person required to comply (the taxpayer).
Principles of Tax Law
Key principles include legality, economic capacity to contribute, generality, equality, progressiveness, and non-confiscation. Community principles, stemming from the European Community Treaty, limit member states’ financial sovereignty and affect individuals as EU citizens.
Sources of Tax Law
Sources include national (Constitution, organic laws, ordinary laws, regulations) and international (treaties, Community law). Custom and general principles have limited relevance due to the principle of legality.
Item 7: Application of Legal Rules
Effectiveness in Time
Tax rules come into effect 20 days after publication, unless specified otherwise. Cessation occurs due to deadlines, repeal, incompatibility, or Constitutional Court ruling. Retroactivity is generally prohibited.
Effectiveness in Space
Tax rules are applied based on residence or territoriality, as specified by law. International double taxation arises when multiple countries tax the same person for the same reason.
Interpretation of Tax Rules
Interpretation follows criteria in the Civil Code and the General Tax Law, considering the meaning of words, context, legislative history, social reality, and purpose. Analogy is permitted for interpretation but not for extending taxable events or benefits.
Item 8: Tax Liability
Concept
Tax liability is the set of obligations, duties, rights, and powers arising from tax implementation. It includes material and formal obligations for taxpayers and the administration, as well as penalties for non-compliance.
Origin of Tax Liability
Tax liability arises from the realization of taxable transactions or liquidation. The taxable event is the legally defined budget that triggers the principal tax liability.
Taxable Event
The taxable event is the generating element of tax liability and classifies taxes. Its elements include the objective element (the factual basis) and the subjective element (the liable person).
Tax Exemption
Tax exemption occurs when the law exempts a taxable event from the principal tax liability. Exemptions can be objective or subjective, temporary or permanent, total or partial.
Item 9: Subjects of Tax Liability
Active Subjects
The active subject is the creditor of the cash benefit (the entity entitled to receive the tax). The state has the primary power to levy taxes.
Taxpayers
The taxpayer is the person legally obligated to fulfill the principal tax liability and inherent formal obligations.
Substitutes
The substitute fulfills the tax liability on behalf of the taxpayer, as mandated by law.
Responsible Parties
The law can designate other persons or entities as subsidiarily or jointly and severally liable for the tax debt.
Tax Domicile
For individuals, it’s the place of habitual residence. For legal persons, it’s the head office or place of effective management.
Representation
Taxpayers can act through legal or voluntary representatives.
Solidarity
Multiple taxpayers can be jointly and severally liable for the tax debt.
Tax Impact
Tax impact refers to the legal transfer of the tax burden to another person.
Succession in Tax Liability
Upon death, outstanding tax obligations are transmitted to heirs. For dissolved legal entities, obligations are transmitted to partners or members.