Tax Law Principles: Non-Confiscation, Legality, Budgetary Acts

Posted on Mar 11, 2025 in Law

Non-Confiscation Principle in Tax Law

The non-confiscation principle is a limit on the progressiveness of taxation. It derives from the constitutional recognition of property rights and the internal logic of the ability to pay. Its purpose is to prevent potentially pathological behavior of coercive economic benefits; in other words, an extreme application of progressiveness. It’s a type of punishment, as you are deprived of your property to compensate. It is established as a limit for the results of the tax system. The Constitutional Court (TC) has decided that a Personal Income Tax would be confiscatory if it provided a 100% rate. Some authors have (unsuccessfully) tried to link it to the need to “preserve the source of wealth”.

The question of whether the tax system erodes the ownership of productive means implies that, in order to pay taxes, companies usually have to sell assets that help them be productive and collect money. The possible legal solution is to decide that everything is a productive asset, which is impractical since it’s too subjective and doesn’t really allow us to identify which assets are truly productive. What’s been proposed is that it could be identified with a level of taxation that creates distortions in the market, resulting in harm greater than the goal of tax collection would allow.

Legality Principle in Taxation

Article 31.3 of the Spanish Constitution (CE) states: “Only an Act of Parliament can establish personal or economic obligations of public nature.” The purposes of the legality principle are:

  • To guarantee private property. (Note: Property is not an unlimited right; it performs a social function. STC 204/2004)
  • To guarantee the “no taxation without representation” principle (principio de autoimposición, STC 185/1995).

The legality principle has three main characteristics:

  1. Foundation in the Constitution, not in an Act: It constitutes the axis of the relationship between the Executive and Legislative powers regarding the production of legal norms.
  2. Represents a limit to the Executive and Legislative powers (mandate): Certain functions cannot be given to them that have been attributed, with the aim of being exercised compulsorily.
  3. Its relevance depends on a Court (the Constitutional Court): This court will judge the adequate and constitutional exercise of the Legislative Power.

Budgetary Act and Public Expenditure

The Budgetary Act cannot establish compulsory contributions; it can amend them when a substantive tax act provides it (Article 134.7 CE). The Budget Law covers the expenditure side. It studies the budget and the procedure to distribute public expenditure. The budget is an annual act, and in it, you have a calculation of revenue by the State, giving authorization to the Government to use and spend this money. The Legislative branch gives this permission to the executive branch, specifying what to spend and on what.

There are therefore two sides: (1) revenue, which has no effects, and (2) expenditure, which has legal effects. Things have changed in recent years because of the EU’s influence. It has declared that Spain is making too many mistakes on revenue. In the budget, we have all the decisions on how the money will be spent and the procedures to carry it out. This is the most important Act that Parliament decides each year.

Budgetary Principles

Although they are regarded as formal principles, they respond to the need of guaranteeing unrenounceable contents in the current democratic and social State of Law:

  • Unity: Ensures the legislative control of public financial activity.
  • Universality: Allows the Budgets to be the rigid application of the degree of solidarity reached, reflecting the contribution to the sustainment of Public expenditure and the criteria from which it is based. It allows that only through the final results of the expenditure and revenue can the actual situation of Public Finance be distinguished.
  • Temporality: The Budget is subject to an annual character according to Article 134.2 of the SC.
  • Specialty: This principle gives meaning to the authorization given by the Legislative to the Executive, since this is given determining the purpose and the maximum amount that can be reached in each case. The Budgetary Act is an act of legal regulation of public expenditure which contains mandates, attribution of powers, and executive rules that regulate the financial activity in regards to expenditure.
  • Stability: This principle is considered a main one in regards to fiscal policies with the aim of achieving European convergence. It establishes that the Budget has to be leveled and previously determined, with the limit of increasing the maximum amount established. Budgetary stability implies that Public Administrations must have a balance or structural surplus; in other words, falling into deficit is prohibited, hence the expenditure can never surpass the revenue.

Law Decree in Spanish Law

Article 86 of the Spanish Constitution establishes that “in case of extreme or urgent necessity, the Government can dictate legislative provisions with the scope of Law-Decrees that won’t affect the basic institutions of the State, the rights, duties and freedoms of the citizens regulated in Title I, autonomous regions regime and the electoral system.”

Key aspects of Law-Decrees:

  • It’s a norm with the rank of law that comes from the Government.
  • It is only possible in case of extreme or urgent necessity.
  • It is a temporary norm as it is done by an organ without “legislative power”.
  • Article 86.1 excludes the matters that cannot be regulated by Law-Decree.

Extraordinary and Urgent Necessity

  • It must be explicated by the Government.
  • It shouldn’t be understood in a restrictive way. The Government has the possibility to decide when circumstances arise and when they do not.
  • The defects of the Law-Decree are not corrected on its posterior validation or conversion in law.
  • The acts of the Government are controlled by the Constitutional Court.

Constitutional Court’s View (STC 182/1997)

  • It is possible to use the Law-Decree for regulating any aspect of compulsory contributions.
  • As an exception, it cannot be used the Law-Decree to make important modifications on the compulsory contributions’ system.

Article 86.1 establishes that Law-Decree can’t affect the regime of autonomous regions either. The law decree cannot affect the general content of the duty to pay taxes; it cannot affect the position of the taxpayer in front of the tax system as a whole. If this position is relevantly modified, this law decree is unconstitutional, but only if the general content of the obligation of the average taxpayer is affected before the general tax system. As for knowing if the duty to pay taxes can be affected or not by a law-decree, it is important to remark the STC 182/1997. In this judgment, the Constitutional Court rejected the co-extension interpretation.

Legislative Decree

Textos articulados and refundidos: Article 82.1 of the Spanish Constitution states that the Cortes Generales (Parliament) can delegate to the Government the power to establish legal provisions on specified matters which are not included. Article 85 states that the dispositions of the government that contain delegated legislation will be called legislative decrees. In a texto refundido, the Cortes Generales provide regulatory guidelines and principles, and the government creates a legal text accordingly.

Key features of Legislative Decrees:

  • It is the disposition with the rank of law dictated by the Government by virtue of a delegation given by the Parliament.
  • It must be given expressly by means of a law.
  • It can deal with matters which are not reserved to organic law.
  • It is an ordinary procedure for the elaboration of dispositions with a general character, and will have the rank of law.