Spanish Constitutional Principles for Taxation and Finance

Posted on Apr 21, 2025 in Law

Normative Nature of Constitutional Principles

Constitutional principles are fundamental elements of the financial system and its institutions (including compulsory contributions or “tributo”, credit revenue, public assets, and the Budget). They are legally binding and possess normative value. We must consider the following:

  1. Direct Normative Value: The Spanish Constitution (SC) is the supreme norm of the legal order, subjecting both citizens and public authorities to its provisions. This normative value stems from the “duty to pay” outlined in Article 31. Any violation of this article allows for claims before the Constitutional Court (TC). Article 31.1 links the duty to pay with the criterion of “ability to pay,” relating them to the financial system as a whole.
  2. Role of the Constitutional Court: The TC, as the supreme interpreter of the Constitution, is independent of other constitutional organs and holds the monopoly on determining unconstitutionality. Its decisions must be respected by judges and the legislative branch.
  3. Role of Ordinary Judges: Ordinary judges must declare the unconstitutionality of norms lower than an Act when necessary and must not apply any norm contrary to the provisions of the Constitution, Acts, or the principle of normative hierarchy.
  4. Key Principles (Art. 31 SC): Article 31 contains three sections outlining principles for tax contribution distribution, including:
    • Applicability of constitutional principles
    • The principle of generality
    • The ability to pay principle
    • The principle of equality
    • The principle of progressiveness and non-confiscation
    • Criteria of economy and efficiency in public expenditure
    • The legality principle
  5. Enforcement (Art. 53 SC): Article 53 SC establishes that any violation of these principles could motivate the filing of an unconstitutional appeal.
  6. Binding Nature: The SC is binding and self-executing. Citizens and authorities are subject to the SC and the rest of the legal system (Art. 9.3 SC). Judges and courts are bound by it (Art. 5.1 LOPJ). Constitutional rules are not mere wishes; they are legal rules.
  7. Abrogatory Power: Acts predating the Constitution that contradict it are implicitly abrogated and no longer in force.

Classification of Public Finance Principles

Principles of public finance justice are classified into two categories:

  • Material Principles: Guide the distribution of public levies and public expenditure concerning the obligation to pay, contributions, and the quantity of payment.
  • Formal Principles: Establish how public levies must be regulated, including the power to create taxes, limits, procedures, and approval requirements – essentially, the process of tax creation.

Duty to Pay Tax

According to STC 76/90, the duty to pay taxes is an order binding both public authorities and citizens, impacting the nature of the tax relationship. For citizens, this constitutional duty implies:

  • A generic submission to the SC and the legal system (as established in Art. 9.1 SC).
  • A position of submission and collaboration with the tax administration to sustain public expenditure, whose essential public interest justifies legal limits on individual rights.

It’s important to understand that the tax administration and the taxpayer are not in the same position as in a private law relationship. The administration acts as a potentior persona, holding a position of superiority.

Functions of the Duty to Pay

The constitutional framing of the duty to pay taxes fulfills a triple function:

  1. Legitimation: Establishes the duty of solidarity among all citizens to contribute to sustaining public expenditure.
  2. Limitation and Legal Protection: Sets the limits of the duty to pay tax; the state cannot compel payment based on criteria different from those established by the SC.
  3. Programmatic Orientation: Entrusts the legislative power with creating a fair tax system as a means to effectuate the duty to pay expressed in the SC, functionally connected with public expenditure.

Generality Principle

Article 31.1 SC states that “all” shall contribute to sustaining public expenditure.

  • Historical Significance: This marked the end of an era of privileges and immunities typical of the Ancien Régime, where only commoners paid taxes, while clergy and nobility were exempt.
  • Contemporary Meaning: All citizens with legal links to Spain (Spanish and foreigners, individuals or legal persons) who have an economic relationship with the Spanish State (as per the principle of territoriality) must pay taxes.
  • Alternative View: Some scholars interpret generality as an order to the legislature to tax every fact, act, or contract revealing an ability to pay, focusing on wealth rather than individuals. This is closely related to the “ability to pay” principle.
  • Prohibition of Discrimination: It prohibits discriminatory exemptions that treat identical situations differently without reasonable justification (STC 96/2002). No type of wealth should be inherently free from taxation.
  • Economic Policy Exception: It allows the use of tax benefits (“concesión de beneficios tributarios”) for economic policy objectives.

Ability to Pay Principle

This is not the sole principle of tax justice; it must be linked to justice principles within the sphere of public expenditure. Sustaining public expenditure according to each individual’s economic capacity implies a mandate connecting citizens to public powers.

  • Constitutional Basis (Art. 31.1 SC): It is the logical ground for taxation. Taxes must be established based on criteria expressing the ability to pay.
  • Scope: It must be present even in non-fiscal taxes (those with goals beyond revenue collection).
  • Taxable Event: The ability to pay must be reflected in the “taxable event” – the set of facts triggering the tax obligation.
  • Legislative Obligation: The legislator must create a financial system where citizens contribute according to their economic capacity.
  • Anti-Discrimination: It prohibits unequal treatment or discrimination not based on other principles and denies generalized enforcement criteria contrary to this capacity.

Equality Principle

The equality principle relates to other principles, particularly the ability to pay principle (forming the basis of “fair taxation”). It must be applied considering other principles, especially progressiveness; equality is not limited to the literal meaning of Article 14 SC.

  • Formal Concept: Ability to pay serves as the reference point to determine when two situations are equal for tax purposes, prohibiting arbitrary discrimination. However, ability to pay is just one among several tax principles.
  • Constitutional Court View: The TC emphasizes that equality requires the legislator to provide the same treatment to those in the same legal situations, prohibiting inequalities that lack objective justification, reasonableness, or result in disproportionate measures (STC 76/90). Justified differences can arise from other constitutional principles. Specific, punctual benefits for certain subjects may not violate this principle if justified.
  • Justification Requirement: Inequalities must be based on objective and sufficiently reasonable grounds according to generally accepted criteria; artificial or unjustified inequalities are forbidden.
  • Landmark Case (STC 209/1988): This judgment addressed joint income tax filing for married couples. The Court found it unconstitutional because the aggregation of income under the progressive tax system resulted in higher taxes for married couples compared to unmarried individuals with the same total income. The discrimination was based on marital status, not just cohabitation and cost-sharing.
  • Income Shifting (STC 255/2004): Discussed rules preventing the deduction of income paid between spouses or to children, highlighting that intra-family income shifts are often disregarded for tax purposes to maintain equality between family units with similar overall income but different internal distribution.
  • Social Protection Systems: The equality principle, linked with ability to pay (Art. 31.1 SC), prohibits the tax legislator from using differences in social protection regimes (e.g., between common workers and civil servants) to exclude the latter from tax benefits (like disability pension exemptions) without reasonable justification.

Progressiveness Principle

Progressiveness characterizes the tax system as a whole, not necessarily every individual tax.

  • Definition: The principle requires that the proportional contribution increases as the wealth of the taxpayer increases. Taxation should be proportionally higher for higher levels of wealth.
  • Systemic Criterion: It is one of the guiding criteria for the entire financial system. The TC has clarified that progressiveness cannot be demanded of each financial instrument individually.
  • Constitutional Link (Art. 40.1 SC): Public Powers are required to promote favorable conditions for social and economic progress and a more equitable distribution of wealth.
  • Relation to Equality: It informs the equality principle, aiming for material equality, not just formal equality.
  • Underlying Value: The value underlying tax principles is solidarity, aiming to achieve equality as a result of the tax system. This principle translates to the concept of fair solidarity.

Non-Confiscation Principle

This principle acts as a limit on progressiveness.

  • Origin: Derives from the constitutional recognition of property rights and the internal logic of the ability to pay principle.
  • Purpose: To prevent an extreme or pathological application of progressiveness through coercive economic measures. Confiscation implies deprivation of property.
  • Systemic Limit: It is established as a limit on the overall results of the tax system.
  • TC Interpretation: The TC has indicated that a 100 percent tax rate (e.g., in Personal Income Tax) would be confiscatory.
  • Debate on Wealth Preservation: Attempts to link non-confiscation to the need to “preserve the source of the wealth” (i.e., preventing taxes from forcing the sale of productive assets) have been largely unsuccessful due to the difficulty in objectively identifying such assets.
  • Market Distortion View: A proposed interpretation identifies confiscation with a level of taxation that creates market distortions causing harm greater than the intended benefit of tax collection.

Legality Principle

Article 31.3 SC states: “Only an Act of Parliament can establish personal or economic obligations of a public nature.”

Purposes

  • Guarantee Private Property: Although property is not unlimited and performs a social function (STC 204/2004).
  • Guarantee”No Taxation Without Representatio”: Reflects the principle of self-imposition (principio de autoimposición, STC 185/1995).

Characteristics

  1. Constitutional Foundation: Its basis is in the Constitution itself, not merely in an Act, structuring the relationship between Executive and Legislative powers regarding law-making.
  2. Limit on Powers (Mandate): It restricts both the Executive and Legislative powers, ensuring certain functions attributed to Parliament are exercised compulsorily by it.
  3. Judicial Relevance: Its application and interpretation depend significantly on the Constitutional Court (TC), which judges the constitutional adequacy of legislative actions.