Understanding Compulsory Contributions: Taxes, Fees, and Special Contributions

Posted on Feb 9, 2025 in Law

Compulsory Contributions: An Overview

Compulsory contributions, a legal concept, 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 resources to finance public expenditure.

Apart from financing public expenditure, compulsory contributions could serve as an instrument of general economic policy and meet the accomplishment of principles and aims contained in the constitution.

Main Features of Compulsory Contributions

  • Ability to pay as a prerequisite.
  • Cannot be confiscatory because confiscation is a punishment that consists of being deprived of one’s assets as a result of a breach of the law. It is not a penalty for an infringement and is never a sanction of an unlawful act, except when this contribution is an extension by a third of a pecuniary obligation.
  • Compulsory contribution sanctions respond to absolutely different principles of justice: economic capacity and reestablishing of the violated order, respectively.
  • It applies not only to nationals but to whoever has economic dealings with Spain (art. 31.1).
  • It’s the most relevant type of public revenue source of public law nature.
  • It is an obligation to pay money. Compulsory contributions generally consist of a source of a monetary character, although it may also consist of a delivery of goods that possess nonmonetary nature.
  • Is required by a PA: tax rules introduce a set of rights and obligations whose main content is the payment of a determined sum of money. Payments are referred to the use of a right of credit and its corresponding obligation. Art. 58.1 LGT established the main obligation of compulsory contribution of the passive subject payment.
  • It is an ex lege obligation which comes from public law, and its objective consists of an economic provision in favor of a public entity. An ex lege obligation is created by the will of the law (the legislative branch act of parliament), and the will of the taxpayer is irrelevant. The taxpayer only decides if he wants to fulfill the factual prerequisites. Also, the public law content and regime cannot be altered by the will of the individuals; it is predetermined in the law.
  • In theory, the PA has no power to decide how much a person has to pay and if he or she must do it or not; this decision belongs to the legislative branch.
  • Compulsory contributions aim at financing public spending but are also addressed for other public objectives, such as stimulating economic development.

There are three types of compulsory contributions: fees, special contributions, and taxes.

Taxes: An In-Depth Look

A tax is an obligation to pay born with independence of an administrative activity. It is paid due to an ability to pay without the imposed obligation being connected to any administrative activity.

Features of Taxes

  • A payment without compensation (anything in exchange).
  • Ex lege obligation, not contractual but rather established by the law (art. 31.3 SC and 8 LGT).
  • Ability to pay of an individual is taken into account.
  • Not connected to any administrative activity.

Therefore, taxes are compulsory contributions required without consideration whose taxable event consists of operations, acts, or facts that reveal the existence of an ability to pay on the part of the taxpayer.

Types of Taxes

  1. Personal/Real:
    • Personal: The tax established with reference to a particular person. A tax which cannot be imposed without relating to a determinant person.
    • Real: The one which has an objective character independent from the personal element of the financial relation. It could be established by the norm without reference to any particular subject.
  2. Subjective or Objective:
    • Subjective: The subjective element (personal circumstances of the passive subject) is taken into account at the moment of establishing the amount of the tax liability.
    • Objective: The personal circumstances of the taxpayer are ignored when calculating the amount of the tax.
  3. Periodical or Instantaneous:
    • Periodical: Continuous in time taxes divided in periods.
    • Instantaneous: A tax which is exhausted by its nature in a determined period of time, which does not mean that it has a fleeting duration (ex: payment of IVA in acquiring an immovable property).
  4. Direct or Indirect:
    • Direct: Means of imposing a legal norm that establishes the obligation of payment of a tax by a particular person to another person who doesn’t form part of a circle of the obliged ones in the financial relation, and there is no right of compensation.
    • Indirect: Impose a financial norm that gives to a passive subject faculties to obtain from another person repayment of the tax.
  5. Fiscal or Extrafiscal:
    • Fiscal: Traditional taxes aimed at financing public expenditure.
    • Extrafiscal: Aimed at reaching other objectives, such as the creation of job posts.

Fees: Understanding the Basics

Art. 2.2 LGT defines a fee as a financial contribution which is imposed in case of private utilization or special exploitation of public domain, service delivery, or carrying out of activities in the scope of public law that affect and benefit individually a taxpayer. These activities or services are not requested or voluntarily received by those that are obliged and are not delivered by private entities. The services delivered or activities carried.

Two Key Hypotheses of a Fee

  1. Private utilization or special exploitation of the public domain: The utilization by an individual of the goods belonging to the public sector or its special exploitation means that public entities have to grant an authorization or give consent prior to use. Consequently, an individual who wants to use, exploit, or take advantage from the public asset has to obtain an authorization by paying an appropriate fee. For example, the use of the streets by bars to get their tables outside so customers may sit in the open air. The imposition of the fee is the use or exploitation of the public good which is done through concessions, authorizations, or other means of competent organs of the PA. There is no fee if the utilization of the good does not involve a personal economic benefit for the passive subject. Passive subjects are licensees.
  2. Delivery of services or activities in the regime of public law which affect or benefit in a particular way a passive subject: When the request of the administrative activity or the reception of the administrative service has an obligatory nature for the passive subject, it is not voluntary. Or when a public sector is the only agent which is able to deliver a service or carry out the given activity. The realization of an administrative activity or delivery of a service in the public regime which affect a taxpayer are subjected to the payment of a fee when those activities or services have not been voluntarily applied for but whether because they are imposed by laws or regulations.

Tax vs. Fee: Key Differences

A tax is connected to an ability to pay (economic capacity) exclusively in relation to a person obliged and this person’s field of activity. A fee, on the contrary, consists of a situation which determines or necessarily relates to the development of an activity of the public entity. If there is no administrative activity, there is no fee. The existence of an administrative activity itself is the criterion of differentiation between tax and fee, since in the imposition of the tax there is no necessary condition of an administrative activity. In the fee, the principle of ability to pay (31.1 CE) is not applied, though a person pays in exchange for a utilization of a public service.

Fee vs. Public Price

Public prices are remunerations received by a public entity as a consequence of delivery of a service or carrying out of activities when those are voluntarily requested by the taxpayers and produced by the private sector. In this case, the solicitor could opt freely between resorting to a public entity paying the public price or demand it from the private sector paying the private price. By contrast, a fee in turn differentiates from the price at least by concurrence of two elements:

  1. It is an ex lege obligation which does not come from a contract, and it is a typical income and a resource of public law.

According to the arts. 19 LTPP and 24 LHL, to set the amount of the FEE for private utilization or exploitation of the public domain, the market value has to be taken into account. The amount of the fee cannot exceed the real or foreseeable cost of the given service or activity or, failing these, the value of the provision received is the determinant factor. In regard with the public prices, art. 25 LTPP and art. 45 LHL establish the necessity to cover, as a minimum, the economic costs originated from activities or service delivery or a payment which would be equivalent to the utility derived from those activities.

Special Contributions: A Detailed Explanation

ART. 2.2. B LGT states “special contributions are the contributions whose taxable event consists in obtaining by the taxpayer of a benefit or of an increase of the value of one’s goods, as a consequence of the execution of public works or establishment of the public services.”

It differentiates from the tax by the fact that in the special contribution there is always an administrative activity; from the fee in the special contributions administrative activity is aimed at satisfying the general interest.

Main Features of Special Contributions

They are regulated in arts. 28 to 37. Main features:

  • They are discretionary established by the public entities.
  • It is a common compulsory contribution of all public entities.
  • The taxable event is the obtaining by the taxpayer of a benefit or increase of the value of his goods as a consequence of performance of public works and expansion of public services of the local extent.

The legislator himself has listed the works and services which have a local nature and whose execution constitutes the taxable event. These are the following:

  • Those that some public entities order other entities to perform.
  • Those performed by the public entities or its dealers with economic contributions from the local entity.
  • Those which are done by the public entities inside the scope of their competences to reach the ends attributed to them.

The taxpayers also legal and natural persons as well as entities referred to in art. 35.4 LGT. The direct causal link between the works done or services expanded and the benefit obtained by the taxpayers is strictly required. The grounds of taxing in accordance with art. 31 LHL, the taxable grounds of the special contributions is constituted, as maximum, by 90% of the cost that the local entity bears for the realization of the public works and expansion of the services. Once the quantity of the contribution is established, it has to be distributed among all the beneficiaries.

Non-Regular Compulsory Contributions

LGT establishes that “parafiscal levies (exacciones patrimoniales) participate in the subject of the compulsory contributions if the specific norm fails”. The above-mentioned parafiscal levies are patrimonial public contributions and are subjected to the legal regime different from that of compulsory contributions. The parafiscal levies represent a serious insolvency of the state of law. They violate traditional financial principles, ignoring the principle of legal security.

  • They are public revenue sources that must be provided in an Act of Parliament since they are compulsory.
  • There are public revenue sources that are not “economic obligations of public nature”.
  • There are public revenue sources that are “economic obligations of public nature” (compulsory contributions).
  • There are “economic obligations of public nature” that are not public revenue sources (Temporary Labour Illness, STC 182/1997).