Libro Financiero-22-72 (Tema 1) PDF

# DISPOSICIONES GENERALES ## EL DERECHO FINANCIERO Y TRIBUTARIO ### El concepto y contenido del Derecho financiero Sainz de Bujanda defines financial law as the branch of internal public law that organizes the resources that make up the treasury of the State and other public entities, as well as...

# DISPOSICIONES GENERALES ## EL DERECHO FINANCIERO Y TRIBUTARIO ### El concepto y contenido del Derecho financiero Sainz de Bujanda defines financial law as the branch of internal public law that organizes the resources that make up the treasury of the State and other public entities, as well as that which regulates the procedures for collecting revenue and the ordering of expenditures. Financial law constitutes the legal framework of public finance. Public finance refers to the activity of the State and other public entities when they carry out the tasks entrusted to them. These tasks are related to the spending of the State, including the raising of funds to cover such spending (state finance in a functional sense). The above definitions share two elements common to all of them, namely Public Finance and financial activity. Financial activity and public finance are closely related: every financial activity needs a public treasury. The end goal of this activity is to generate revenue and spend it on collective needs. To analyze the financial activity of a determined public entity, it is important to look at both what constitutes Public Finance and how this activity is developed. In other words, Public Finance is analyzed from both a static and dynamic point of view. Firstly, we must analyze Public Finance from a static perspective, defining it: outlining its component parts. From this perspective, one can define Public Finance as the set of rights and obligations of economic content whose ownership corresponds to the State, including its autonomous organizations. The economic rights of the different regional treasuries ## LAS FUENTES ### La Constitución The Spanish Constitution of 1978 (Article 31) is the primary source for financial law. It establishes principles essential for financial law in its entirety and sets out other legal prerequisites. While these principles are directly enforceable in some cases, further legal provisions are generally necessary. We will discuss the Constitutional principles related to financial law further in a later section. ### Los Tratados Internacionales After the Constitution, the lowest rank source of law is international treaties. Once these treaties have been ratified and officially published in Spain, they become part of the legal system. Within financial law, agreements seeking to avoid double taxation are particularly important. Treaties override internal tax legislation. When there is conflict between a treaty and an internal law, the treaty provisions take precedence. Such agreements define which state has jurisdiction to tax certain types of revenue, specifically income tax. Implementation of treaties requires the adoption of specific legal measures. Accordingly, authorization from the Cortes Generales is necessary. The agreement with the Catholic Church signed on 3 January 1979 falls within the category of treaties, and has far-reaching implications for taxation. ### El Derecho Comunitario Spain is a member state of the European Union. As such, the legal framework of the Union also forms part of Spain’s internal laws. These can be divided into: founding treaties of the European Communities (also known as primary EU law) and regulations generated by these treaties (also known as secondary EU law). These secondary regulations appear mainly as: regulations and directives. Regulations become directly applicable in internal law with no need for domestic implementation. Directives require the adoption of a national law to implement them. In the case of financial law, directives related to the harmonization of indirect taxes are particularly relevant. This is because indirect taxes are those which are not directly linked to a person’s income or wealth, such as sales taxes. Harmonizing indirect taxes is more difficult for the EU because of the requirement that this be done unanimously by all member states. The Court of Justice of the European Union has jurisdiction over disputes related to EU law, and its decisions bind both national courts and ECJ itself. For instance, the Basque Country’s High Court has sought guidance on the consistency of the Basque Country’s fiscal agreement with EU law. ### El Concierto Económico y el Convenio Económico Spain’s internal financial laws are affected by the fiscal agreement of the Basque Country and the fiscal agreement of Navarre. They regulate the fiscal relationship between these autonomous regions and the State. This agreement assigns specific taxation powers to these regions and includes both legislation and management of taxes. Ultimately, the Constitution grants all autonomous regions the power to draft their own tax systems, subject to certain restrictions. In the Basque Country, the authorities responsible for taxation are the three Basque Provincial Councils, which have the power to collect taxes and regulate the system. ## LOS PRINCIPIOS DEL ORDEN TRIBUTARIO The tax system cannot be analyzed without considering the set of legal principles that underpin it. Some of the principles of the tax system appear in the Spanish Constitution, where: * principles are either clearly stated or implied by the Constitution; * principles are either expressed and interpreted through the legal system. These principles are not just organizational: they are requirements imposed on lawmakers. ### El principio de capacidad económica Article 2 of the NFGT (and Article 3 of the LGT) distinguishes principles related to: * the organisation of the tax system; * the application of the tax system. The NFGT stipulates that organization of the tax system is based on: * the economic capacity of those obliged to pay taxes; * the principles of justice, generality, equality, progressiveness, an equitable distribution of the tax burden and non- confiscation. Article 31.1 of the Constitution states that: * everyone contributes to public spending according to their economic capacity; * the tax system is based on the principles of equality and progressivity; * no tax shall be confiscatory. The principle of economic capacity is fundamental. It forms the basis for other tax principles, such as the principle of equality and the principle of justice. Two further principles are implied from this one: * everyone with economic capacity should pay taxes (the principle of generality); * those with the same economic capacity should pay the same amount of tax (the principle of equality). The link between the principle of economic capacity and the principle of equality can be explained by the notion of unequal treatment for unequal situations, which is key to the idea of equality. A definition of the principle of economic capacity is needed. This is the capacity to acquire or own assets or services of an economic nature. It manifests itself in: * the accumulation of assets (capital or wealth); * an income stream (revenue); * a stream of expenditure (spending, consumption or investment). Tax burdens fit with the principle of economic capacity if the amount to be paid is set in relation to income, wealth or spending. If taxes are based on features such as age, sex, religion or marital status, then these taxes are unconstitutional. This is because these features are not manifestations of economic capacity. Therefore, when establishing a tax, legislators need to consider some factor that reflects economic capacity, such as income, wealth or expenditure. This is a critical element of tax design. Several points need to be made regarding the principle of economic capacity: 1. The principle of economic capacity only applies to taxes, not to other sources of revenue for public entities. 2. The NFGT and the LGT distinguish between: * Taxes * Fees * Special taxes. The principle of economic capacity, and not the principle of equivalence, is the basis for fees and special taxes. This suggests that the principle of economic capacity is applied solely to taxes. However, this does not mean that fees and special taxes are unconstitutional. Furthermore, some taxes that are based on the principle of equivalence, such as divisible taxes, may be sufficient to cover the costs of the service. Divisible taxes are those which are allocated to a specific identifiable service, whereas indivisible taxes are those which are levied collectively to fund general services. However, in some cases, taxes are the only way to fund certain divisible services. This is why the Spanish Constitutional Court has held that: “The State or the Autonomous Communities may introduce taxes based on other principles, such as those of an economic or social nature.” 3. The principle of economic capacity is not absolute. It is possible to deviate from it but only in one direction, namely exemptions or reductions. This means that someone with economic capacity can pay less tax than they would otherwise pay. However, the purpose of doing so is to achieve a goal beyond purely fiscal goals, and it must be consistent with other aspects of tax legislation. The reverse, charging someone beyond their economic capacity, is not allowed, as it would be confiscatory, which is prohibited by the Spanish Constitution. 4. The principle of economic capacity limits the application of the principle of equivalence. If fees are charged for the use or provision of essential services, then those who cannot afford these services must not be denied them. 5. The principle of economic capacity should be applied not just to the tax system as a whole, but also to each of its component parts. However, it should not dictate the specific factors used to determine the tax base. For example, VAT is not based directly on the economic capacity of those who incur the liability, as it is levied on the supply of goods and services. However, those who acquire these goods and services bear the economic cost of VAT. ### El principio de generalidad Article 31.1 of the Constitution states that: * all people contribute to public spending. This establishes a general obligation to contribute. Generalilty is linked to economic capacity: everyone has to contribute, but they must contribute according to their ability to pay. The principle of generality applies to both residents and non-residents, physical and legal persons. The principle of generality is not absolute, as this would contradict the principles of equality and economic capacity. Therefore, the principle of generality must be considered together with those and other principles. Exemptions or benefits are therefore not necessarily unconstitutional. Exemptions mean that certain events which would normally trigger a tax liability are removed from the scope of the tax (objective exemptions), either in general or for specific individuals (subjective exemptions). Similarly, deductions are permissible. They are either generally applicable to all taxpayers, or available to particular people. ### El principio de igualdad Articles 1, 14 and 31 of the Constitution all refer to the principle of equality: * Article 1 sets out the principle of equality within the Spanish legal system. * Article 14 states that: *all Spaniards are equal before the law; no discrimination shall be made on the grounds of birth, race, sex, religion, opinion or any other personal or social condition or circumstance.*” In this way, the principle of equality is set out as a general principle. Article 31 of the Constitution states that: *everyone contributes to public spending according to their economic capacity through a just tax system that is based on the principles of equality and progressivity; no tax is confiscatory.”* The concept of equality presented in these articles means that those who are in the same tax situation should contribute the same amount and those in different tax situations should contribute different amounts. Equality is tied to the principle of economic capacity: you cannot treat people equally if they are in unequal situations, or have different economic capacities. This is why formal equality should not be applied in the context of tax law. Instead, material equality is relevant – i.e., taking into account income, wealth and other factors that affect individuals, such as: * fairness * social justice * the common good. Some argue that promoting an activity is a more practical basis for equality, but this is not correct. While this may lead to some people contributing less or not at all, this does not stem from the principle of equality: it is based on other principles. The Constitutional Court has consistently upheld the connection between the principle of equality and economic capacity, while allowing certain types of discrimination on the grounds of fiscal fairness. The principle of equality can be applied both to the tax system as a whole, or to individual taxes. It cannot be justified that a tax is: * discriminatory (i.e. unfairly disadvantages some groups over others); * lacking justification (i.e. based on arbitrary grounds). However, objective and reasonable unequal treatment is acceptable, provided it satisfies the following conditions: 1. The comparison must be between homogenous groups. 2. Discrimination is not inconsistent with the EU’s Charter of Fundamental Rights if it is: * objectively justified * reasonable. 3. In addition to objective justification and reasonableness, any unequal treatment must not be disproportionate, i.e. excessive or unreasonable. The principle of equality does not have absolute force. It is relative in nature. This means that inequalities can arise in specific situations. For example, when it comes to using taxes for political, cultural or health reasons, it may be acceptable to discriminate against certain groups. This practice is often used to achieve extra-fiscal goals, i.e. non-taxation goals. The European Court of Justice has confirmed that this practice is not a violation of the principle of equality, as long as the discrimination is not unjustified. ### El principio de progresividad The principle of economic capacity means that those with higher economic capacities contribute a larger proportion of their wealth to the public purse compared to those who have a lower capacity to pay. This can be achieved through proportional taxes; however, progressive taxes go further. Progressive taxes mean that the tax burden increases as the tax base increases. This is consistent with the principle of economic capacity because those who have a higher economic capacity should carry a heavier burden. However, only certain types of taxes are considered progressive. They typically affect income or wealth. Taxes on production, consumption, or a portion of wealth are not considered progressive. They are often considered regressive, which means that the tax burden falls more heavily on low-income earners. While the Spanish tax system is progressive, it is not based on a single metric: * Different rates have been established for Income Tax in different Autonomous Communities, including the Basque Country and Navarre. All of these systems remain consistent with the constitutional principle of progressivity. ### El principio de no confiscatoriedad The principle of progressivity has a limit: the principle of non-confiscation. This principle is set out in Article 31.1 of the Constitution: * it refers to the acquisition of private assets by the State without any compensation. Taxes do not involve compensation. Therefore, it might seem as though all taxes are confiscatory. However, this is not the case. Confiscation has to be properly understood. It is not about taxes per se. It is about the right to property, i.e. that while taxes must be paid, they should not be so large that they amount to the complete taking of private assets without any compensation. This principle is more ideological than legal: it is implicit in the concept of property outlined in Article 33 of the Constitution. To examine the effects of confiscation, it is necessary to consider the economic capacity of the taxpayer. Taxes should not be so high that they deprive someone of the bare essentials of life. However, the tax thresholds for confiscation are difficult to determine. In some cases, a 50% tax on the minimum wage might be considered confiscatory, whereas a 50% tax on higher income might not. Taxes, particularly those levied permanently on wealth, could be confiscatory if the taxpayer is required to pay more than what is generated by the wealth itself. Additionally, taxes on income or production could also be confiscatory if they do not allow individuals to maintain a minimum level of income. This may occur when the tax base is small, or when there is a high rate of tax on consumption or spending. ### El principio de legalidad o reserva de ley When considering the tax system, it is important to consider formal requirements, such as the principle of legality. This principle is found in Article 31.3 of the Constitution. It states that: * *“public levies are only to be established by law.”* Article 133.1 of the Constitution states that: * the taxing powers of the State are exercised by law. Taxes are a manifestation of state sovereignty. Therefore, any tax not created or established by law is not legitimate. This applies not only to the form of legislation, but also to its substance: * the tax must be just and legitimate, * it must ensure legal certainty for the taxpayer, allowing them to understand clearly the scope of their obligations to pay. However, the law itself has limits: * Article 87.3 of the Constitution states that: * *“no popular initiative shall be admitted in respect of organic, tax or international legislation, nor as regards the prerogative of pardon.”* The Budget Law, which is passed annually, has an effect on taxes, but Article 134.7 restricts its scope: * *“The Budget Law may not create taxes. It may alter them when a substantive tax law so provides”.* However, current Budget Laws do not make any changes to substantive tax laws. Instead, *companion bills* were introduced to deal with changes in tax, labor, social and administrative legislation. Since 2004, these have not been used by the central government, though Autonomous Communities still use them. The principle of legality is based on two requirements: * essential elements of the tax must be set out in a law (Article 31.3 of the Constitution); * this applies to all taxes including those imposed by the three Basque Provincial Councils (Article 133.1 of the Constitution). The key elements included in the law are: * the factual event that triggers a tax liability (the tax base); * the person who is liable for the tax (the taxpayer); * the amount to be paid (the tax calculation); * the time limits for satisfying the tax liability. The legal framework for taxes must also include provisions about a taxpayer's rights and guarantees. The NFGT and the LGT establish a *quasi-legal reserve* for taxes: * they contain provisions that are not strictly a *legal reserve*, as they only favor the principle of law, not the principle of regulation. The Spanish Supreme Court has held that: * the Constitution is the only source of a *true legal reserve*. Articles 7 of the NFGT (and 8 of the LGT) specify matters that need to be regulated by law: * the defining elements of a tax: * * the scope of a tax * the taxable amount * the tax rate * the method of calculating the tax liability * how any payments to be made during the tax year are figured out * where any tax liability is to arise * the circumstances which trigger a tax liability * the determination of: * * the persons liable for a tax * those who are responsible for a tax * the establishment, alteration, abolition or extension of: * * tax exemptions * tax reductions * tax allowances * tax deductions * tax incentives * the establishment and alteration of: * * tax surchargers * interest on late payments * the time limits for: * * filing a tax return * paying tax * challenging a tax assessment. * how to deal with: * * non-compliance with the tax obligations * the effect of non-compliance on legal or business transactions * the basis for: * * tax disputes * how to challenge tax assessments * the basis for: * * tax amnesty * tax reduction * tax relief * the granting of tax relief * how to determine: * * the basis for challenging tax assessments * the need for a tax inspection ### El principio de justicia A just tax system should be: * *fair* * *consistent* * *capable of producing legal certainty* While a tax system may respect all the key principles of taxation, it could still be unjust. This could happen in a number of ways: * *the cost of complying with tax rules is excessive* * *the amount of tax paid per person is so high that it stifles economic activity*. Article 31 of the Constitution includes the principle of justice to counter these issues. ### Los principios de la Unión Europea The European Union forms part of Spain’s legal framework, and Spanish tax law must be consistent with EU principles. These principles also bind taxpayers: they can use them to challenge tax law in any national court, and they have a right to appeal to the Court of Justice of the European Union. The EU’s legal framework seeks to: * *create a single market* * *establish a customs union* * *harmonize national laws* The EU’s legal framework aims to: * *prohibit unfair trade actions* * *establish free competition* * *avoid discrimination* * *establish common policies in specific areas* * *promote citizenship* * *encourage innovation and competitiveness* The principle of non-discrimination means the EU cannot: * charge duties on imports or exports between EU member states * discriminate between products from different member states * discriminate against people from different member states. For instance, the EU legal framework prohibits: * the imposition of tariffs on goods being traded within the EU * the imposition of discriminatory taxes on goods imported from another EU state * the imposition of discriminatory travel restrictions on citizens of other EU states. The EU principle of free competition is also relevant, as it concerns legislation on: * *agriculture* * *fisheries* * *transport* * *the environment* * *general competition law*. The principle of non-discrimination is reflected in the EU legal framework for: * *VAT* * *excise duties* * *taxes affecting corporation tax* harmonizing these taxes has been a challenge, but there is some progress being made in this area. However, the EU principle of free competition has forced a re-evaluation of the principle of economic capacity and the principle of progressivity in the Spanish Constitution ## LA APLICACIÓN DE LAS NORMAS ### El ámbito temporal de aplicación de las normas The first issue faced when applying tax law is determining the temporal scope of its application. This raises several questions: * *When do tax rules become legally effective?* * *When does their effectiveness end?* * *Can tax rules have retroactive effect ?* #### La entrada en vigor de las normas Articles 9 of the NFGT (and 10 of the LGT ) state that: * *tax rules become effective twenty days after being fully published in the relevant official bulletin, if they do not specify otherwise. These rules apply indefinitely unless a set period is stated.* In practice, tax rules often state explicitly when they become effective. The term ‘tax rules’ includes not just laws, but also statutory instruments such as regulations. Tax rules may also apply to events that occurred before they were passed, such as those that occurred after publication of the draft bill proposing the law. This is considered permissible in Spain, but is not best practice. #### El cese de la vigencia de las normas Tax rules can either be: * *temporary* * *indefinite*. Indefinite tax rules cease to have effect when they are repealed. Temporary tax rules cease to have effect when they expire. The principle of legislative hierarchy applies to repeal: * if a rule is to be repealed, the repealing rule must originate from a source at least as high in the legislative hierarchy. Repeal can be: * *express* – i.e., explicitly stated in the repealing rule * *implied* – i.e. implied because of a conflict between the repealing rule and the repealed rule. In this case, the repealing rule must: * cover the same subject matter as the repealed rule * be inconsistent with the repealed rule. Repeal by implication can be problematic, and such problems may be avoided if Article 9.2 of the LGT is followed. This states that: * *“every alteration made to tax laws or regulations should include a list of all affected rules.” * Additionally, Article 9.1 of the NFGT states that: * *“tax regulations must include a reference to this in their titles and in the headings of all relevant articles.”* Therefore, all tax legislation needs to include explicit references to what it repeals. #### La retroactividad de las normas tributarias Tax legislation takes effect once it comes into force. The next question is what happens to situations that existed prior to the effective date. This is particularly important for tax rules, as they often concern events that have already occurred. In general, tax legislation applies prospectively, i.e. with no retroactive effect. Article 9.3 of the Constitution states that: * *“tax rules will not have retroactive effect unless they provide otherwise.”* This provision is similar to Article 2.3 of the Spanish Civil Code. Likewise, the principle of non-retroactivity applies to tax rules that: * *are disadvantageous to individuals* * *restrict individual rights*. This is because tax rules are considered special legislation. They require a higher level of protection for the taxpayer. They can affect not just the right to property, but also economic capacity, legal certainty and the principle of non-arbitrariness. However, under certain circumstances, tax legislation can also be retroactive, provided the relevant legislation or other rules allow it. This can be the case when a change to the law is more beneficial to the taxpayer. The NFGT (and the LGT) require that a list of rules affected by a change in the law be provided in such cases. Retroactivity can be divided into two types: * *full retroactivity* * *imperfect retroactivity*. Full retroactivity occurs when a law is applied to situations that existed before it was introduced. Imperfect retroactivity, on the other hand, applies to situations that are not yet complete. However, the Constitutional Court has rejected the principle of full retroactivity in the tax system. The Court has held that: * applying a tax law to scenarios that occurred before its enactment violates the principle of legal certainty for taxpayers. In some cases, the Court has approved of imperfect retroactivity. For instance, the Court struck down a law that raised the tax on slot machines retrospectively because there was no justification for this, as the tax was being applied to a new situation and was not foreseeable. The Court has also approved of imperfect retroactivity in situations where the Constitution allows it, such as in times of economic crisis. Note that the Spanish Supreme Court has distinguished between *true retroactivity* and *legal changes*. #### El ámbito espacial de aplicación de las normas The next aspect of applying tax law is to determine: * *where a tax rule is effective* * *the situations to which it applies*. The principle of territoriality means that Spanish law applies to: * *residents of Spain, i.e. those with a Spanish domicile* * *non-residents, provided there is some connection with Spain* Those connections are not always explicitly stated, but Article 10 of the NFGT (and Article 11 of the LGT) states that: * *if a tax is based on personal characteristics, then the person’s Spanish domicile is the relevant link*. * *if a tax is based on something other than personal characteristics, then the relevant link is territoriality*. The latter is the most common rule in taxation. It is possible for both tests of residency and territoriality to apply, so that a Spanish tax may be levied on income generated from an activity in Spain even if the person generating that income is not resident in Spain. ### La doble imposición internacional Double (or multiple) taxation happens when a single event triggers tax liability in more than one state. For this to apply, the following must be true: * the same taxpayer is subject to the tax liability * the tax liability is based on the same event * the tax obligation arises in the same period * the tax applies to the same type of tax. A typical example is the earnings of someone residing (and thus subject to tax) in Spain, but who works in India. In this case, the taxpayer has to pay tax in both Spain and India. This kind of double taxation based on the same taxpayer is known as *legal double taxation*, whereas double taxation arising from two different taxpayers is known as *economic double taxation*. The concept of double taxation can be illustrated with an example. Let’s say that X is resident in State A but works in State B. Let’s say that X earns 100 in State A and 20 in State B. X would need to pay tax in State A based on all their worldwide income, which totals 120. However, X would also need to pay tax in State B on the 20 earned there. This type of double taxation creates injustice, as the taxpayer makes two payments on the same earnings. Therefore, efforts are underway to prevent double taxation. The principle of double taxation is dealt with through: * *unilateral measures, i.e. action by individual states* * *multilateral agreements, i.e. agreements between two or more states*. Unilateral measures are often enacted by countries using their own domestic law, while multilateral measures often come from international agreements or treaties. Multilateral agreements are common, particularly on direct taxes. These typically refer to avoiding double taxation, as they can only occur when both countries have a tax claim. The Organization for Economic Co-operation and Development (OECD) has produced its own model treaty which is widely adopted. There are two ways of trying to avoid double taxation: * *exemption* * *crediting*. #### Exemption Income taxed in another state is excluded from the taxpayer’s tax liability in their country of residence. There are two types of exemption: * *full exemption* * *exemption with progressivity*. Full exemption is a simple exclusion. Exemption with progressivity means that the income taxed in another state is only taken into account when calculating the tax rate, not the total tax liability. #### Crediting Income taxed in another state is taken into account when calculating the taxpayer’s tax liability in their country of residence. In return, the taxpayer can deduct the amount of tax paid in the other country. Crediting can be: * *full crediting* * *partial crediting*. Full crediting means the taxpayer can deduct the full amount of tax paid in the other country. Partial crediting means that only a partial deduction is possible, and the deduction will be the lower of the two: * the amount of tax actually paid by the taxpayer in the other country * the amount of tax that would have been paid if the earnings had been generated in the taxpayer’s country of residence. ## LA INTERPRETACIÓN DE LAS NORMAS TRIBUTARIAS ### La interpretación de las normas tributarias Tax law, like all legal systems, requires interpretation. Determining the precise meaning of a provision is vital for its proper application. Interpretation is particularly important in tax law because of uncertainty about the exact consequences of an action: * *the consequences of non-compliance with tax obligations* * *the consequences of certain legal transactions* * *the consequences of certain non-legal transactions*. However, the methods used to resolve the meaning of tax law have generated controversy from the beginning. The *Historical School* of legal interpretation believed that tax law was: * *not truly law* * *required special rules of interpretation*. For instance, some argued that the law should be interpreted literally, while some argued that interpreting the law favorably for the tax authority was necessary. A difference was observed between the interpretation of civil law and the interpretation of tax law. The approach favored by the ‘economic reality’ school of interpretation in Germany was that: * *tax law should not be based on formal legal standards* * *tax law should be interpreted ‘realistically’ according to economic factors or political considerations*. Such approaches had particular implications for the interpretation of tax law under totalitarian regimes. The current view is that tax law is not a unique legal category, but rather: * *a set of rules within a broader legal system* * *subject to the same general principles of interpretation*. This means that the principle of *literal interpretation* is applicable to tax law. However, the content of tax law is specific to the tax area. This is why there are special rules of interpretation for tax law. Article 11 of the NFGT (and Article 12 of the LGT) cover interpretation: * *Article 11.1 makes clear that tax law is interpreted according to Article 3.1 of the Spanish Civil Code, which mandates the application of those general interpretation rules.* * *Article 11.2 addresses the definition of key terms in tax law, suggesting that the meaning should be derived from the: * *legal definition of a term* * *technical definition* * *ordinary usage*. * *Article 11.3 contains specific provisions regarding orders, which clarify rules or interpret the meaning of tax law. Such orders are binding on all public bodies involved in tax administration*. The principle of *interpreting tax provisions according to general legal principles* is not limited to the rules set out in the CC. This is because: * *tax law should also be interpreted consistently with the principles set out in the Constitution*. The Constitutional Court has held that: * *a broader, less literal, approach is needed when interpreting tax law* * *the context in which a situation arises should be taken into account*. The Constitutional Court states that: * “To prevent the emergence of dated legal interpretation, the interpreter is permitted to exercise judgment when applying rules of law and to make their decisions in a more flexible and appropriate manner - taking into account the specific facts of each particular case". ### La calificación Determining a tax liability based on the facts of a specific situation involves two steps: * *interpretation of the tax rule* * *classification of the relevant facts*. Interpretation is about understanding the meaning of the provision. Classification is about drawing a connection between the facts and the legal rule. It involves determining what action, behavior, or activity will trigger a tax liability. Taxpayers are required to make this classification when: * *they file a tax return* * *they make a self-assessment*. The tax authority is responsible for checking the validity of the taxpayer’s classification, through: * *verification procedures*. When classifying a fact, the following should be done: * an objective legal test must be carried out, not simply relying on words used by the parties involved * the context of the transaction must always be considered. For example, if a party calls an agreement to rent a bar “a rental contract for a commercial establishment,” the tax authority must determine the real nature of the agreement and treat it in accordance with the legal frameworks that apply to the relevant type of transaction. This might mean treating it as a “commercial lease” rather than a “lease for a commercial establishment”. The correct legal classification of a transaction is critical: * it decides whether the transaction is: * *subject to the law that applies to buildings* * *or subject to the law that applies to movable property*. The above is also a matter for: * litigation * litigation before the Court of Justice of the European Union #### La analogía The principle of analogy involves extending the scope of a legal rule to a situation not specifically covered by it. Article 4.2 of the CC determines that: * *analogy can be applied so long as the relevant rule covers a similar situation*. * *analogy is not permitted for criminal, exceptional, or temporary laws*. This principle applies, on a supplementary basis, to all areas of Spanish law. The key questions about whether analogy applies in the context of tax law are: * *Is analogy ever allowed for tax law?* * *Even if it is allowed, are there limits on the type of analogy that can be applied?* Article 13 of the NFGT states that: * *analogy cannot be applied to broaden beyond their strict legal definitions the definitions of: * *the legal basis for a tax* * *tax exemptions* * *tax benefits or tax incentives*. The NFGT takes a restrictive approach to using the principle of analogy. It is worth considering two different approaches: * *that analogical reasoning is never permissible in the context of tax law* * *that analogical reasoning is permitted in certain limited circumstances*. The first approach argues that: * *the principle of legality requires that tax laws are strictly applied* * *new laws are necessary to address new situations, and they should not emerge through the application of existing law*. Those who take this view, argue that: * *any other approach is essentially usurping the legislative function* * *the principle of legal certainty is undermined*. However, it is arguable that analogy does not necessarily involve usurping legislative function, but rather: * *the application of principles to new situations* * *these principles already exist within the legal system*. For this reason, some argue that analogical reasoning is permissible in specific circumstances, so long as it does not conflict with the principle of legality. Several situations where the principle of analogy might apply in tax law are: * *the tax base* * *exemptions* * *tax benefits* * *tax incentives*. This is the approach taken in: * Article 13 of the NFGT * Article 14 of the LGT. #### La cláusula antielusión y el fraude de ley Article 14 of the NFGT (and Article 15 of the LGT) addresses what is known as *tax evasion* or *tax avoidance*. This refers to situations where the taxpayer: * *seeks to avoid paying tax by manipulating the law* * *does so with specific fraudulent intent*. The principle stems from Article 6.4 of the Spanish Civil Code, which deals with the concept of *fraud of law.* This concept requires: * *that there should be two or more legal rules* * *that the taxpayer should be relying on one rule in order to undermine another rule*. Furthermore, the Civil Code does not require proof of fraudulent intent: it