Tax Obligations: A Comprehensive Guide

Posted on Oct 19, 2024 in Law & Jurisprudence

Tax Obligations

Compulsory contributions are a source of public revenue. They consist of economic payments required by a Public Administration (PA) when specific conditions are met, as established by an act of parliament. The primary aim is to obtain the resources needed to finance public expenditure.

Legal Configuration

Compulsory contributions can be viewed as a power relationship, with no limits to the content of tax provisions, and procedures being less relevant. Alternatively, they can be seen as a legal relationship based on an obligation (a right to be paid), where the tax obligation is the essential element. The administrative power to implement the tax constitutes the formal tax law.

Taxation Procedure

The purpose of the taxation procedure is tax collection. The administration holds the power and duty to obtain revenue, and individuals are subject to public law regime duties. (Art. 17 LGT)

Legal Tax Relationship

This is defined as the whole of the obligations and duties, as well as the imposition of penalties in case of infringements, that can derive from the legal tax relationship. Material tax obligations include the obligation to pay the tax and the obligation to make anticipated payments.

Main Tax Obligation

Its object is the payment of the tax due (Art. 19 LGT). It arises as a consequence of the fulfillment of a specific set of facts: the taxable event.

Elements

  1. Ex lege obligation: It arises as a consequence of the fulfillment of the taxable event, regardless of the will of the parties involved.
  2. Public law regime obligation: The administration cannot dispose of the credit derived from the tax (indisponibilidad).

Taxable Event

The taxable event is established in a legal provision and only exists as such because a legal provision has created it. Its nature is legal, not economic. It legitimizes taxation and all associated obligations, allowing us to identify each tax. Tax law provisions can give an existing term a new meaning for tax purposes (autonomía calificadora, Art. 13 LGT).

The object of the tax is any source of wealth, income, or any other element of economic activity that the legislature decides to subject to tax.

Structure

  • Subjective element: The person referred to by law as fulfilling the taxable event.
  • Objective element: Fact, act, or transfer.
  • Spatial aspect: Place where the tax event is deemed to occur.
  • Temporal aspect: Moment when the tax event is fulfilled, and the tax becomes due. Instantaneous taxes versus periodic taxes.
  • Quantitative aspect: To what extent the taxable event is carried out (i.e., with how much intensity).

Moment When the Tax is Due

This is the moment when the tax event has been fulfilled, and therefore the obligation to pay tax arises (21.1 LGT). It is an element subject to the legality principle. There is a distinction between instantaneous and periodic taxes. It determines which legislation is applicable for each tax event (10.2 LGT). The elements of fact of the taxable event at the moment when the tax is due will determine the content of the obligation that arises from it. The moment when the tax is due is different from the moment when payment of the tax is due (IRPF).

Quantifying Elements

Fixed taxes: Those for which the legislation directly provides the amount of the tax due (e.g., IVTM).

Variable taxes: Those for which the legislation resorts to quantifying elements. Their legal regime must be provided by an act subject to the legality principle, and their legislation is subject to the principles of tax justice.

Tax Rates

(Art. 55 LGT) The figure, coefficient, or percentage applied to the reduced tax base to obtain the tax due. Types include tax rates on non-monetary tax bases (e.g., 0.01 per liter) and tax rates on monetary tax bases (alicuotas):

  • Proportional or progressive: (IRPF)
  • Continuous: The same rate applies to the whole reduced tax base.
  • Brackets: The reduced tax base is divided into brackets, and a different rate applies to each of them. (Progressiveness errors, Art. 56.3 LGT, correction).

Tax Due

(Art. 56 LGT)

Gross amount due (cuota íntegra): Results from applying the tax rate to the reduced tax base (taxable base). GAD = RTB × TR

Net amount due (cuota líquida): Results from subtracting deductions and tax credits from the gross amount due. NAD = GAD – (Deductions + Tax Credits)

Balance due (cuota diferencial): Results from reducing the net amount due by the amount of advanced payments. BD = NAD – AP

Advanced Payment Mechanism

In the income tax (IRPF), payments are made before the tax is due and in anticipation of the tax due. Types of advanced payments (Art. 101 TRLIRPF):

  • Withholding tax (retenciones): A third person, other than the taxpayer, has the obligation to pay (he who withholds the tax).
  • Prepayments (ingresos a cuenta): A third person has the obligation to pay in case of payments in kind (not in money).
  • Installment payments (pagos fraccionados): The taxpayer himself has the obligation to pay (business income, RAE).