The Constitutional Court has been limiting the temporal effects of the unconstitutionality of tax rules, in the case of non-consolidated situations, to the date on which the corresponding ruling is handed down, with an expansive interpretation of this concept of “non-consolidated situation”. We review what these limitations consist of and how to allocate any refunds obtained.
In the tax sphere, the declaration of unconstitutionality of the rules can have a significant effect on tax collection, as it can force refunds of the amounts paid in application of such regulations. For this reason, although the unconstitutionality of a rule has ex tunc effects, i.e. from its origin, the Constitutional Court has traditionally limited the temporal effects of the unconstitutionality declared in its rulings.
This modulation of the temporal effects of declarations of unconstitutionality has historically been present in the judgments of the Constitutional Court, although there are well-known pronouncements in recent years in which the temporal limitation of effects has been carried out in a more restrictive manner.
Suffice it to cite rulings 182/2021 of 26 October 2021, 133/2022 of 25 October 2022 and the most recent ruling 11/2024 of 18 January 2024, relating to the Tax on the Increase in Value of Urban Land -municipal surplus value-, the Tax on Construction, Installations and Works and Corporation Tax, respectively. In these rulings, after declaring the precepts in question unconstitutional, the Constitutional Court established that tax obligations which, at the date on which the Constitutional Court’s ruling was handed down, had been definitively decided by a judgment with the force of res judicata or by a final administrative decision, cannot be considered situations susceptible to review on the basis of the declared unconstitutionality, with the particularity (to the detriment of taxpayers) that the temporal effects go back to the date of the “decision” and not to the date of “publication” of the various judgments.
The novelty in the most recent rulings is the expansive nature of what the Constitutional Court considers to be “consolidated situations”, i.e. those that cannot be reviewed on the basis of unconstitutionality. Thus, the Court considers as such (i) provisional or final tax assessments that have not been challenged at the date of the ruling and (ii) self-assessments whose rectification has not been requested at that date on the basis of article 120.3 of the General Tax Law.
This delimitation of which situations must be be classified as consolidated entails a significant restriction of taxpayers’ possibilities of recovering taxes paid on the basis of rules declared unconstitutional, given that (i) on the one hand, it prevents the discussion of non-firm assessments whose appeal period had not ended on the date of the judgment, due to the fact that the taxpayer had not challenged them prior to that date; and (ii) on the other hand, the taxpayer is deprived of the right conferred upon him by the General Tax Law to request, within a period of four years, the rectification of the self-assessments that he considers to have harmed his interests and to obtain the corresponden refund of undue income.
The Tax Agency seems to go even further in its interpretation of the aforementioned time limitations, as can be seen in its note of 5 February 2024, in which it is analysed the impact of the ruling of 18 January 2024 (relating, as indicated above, to amendments to Corporate Income Tax – introduced by Royal Decree-Law 3/2016 of 2 December) on inspection procedures open and pending settlement at that date.
In that note, the Tax Agency rightly indicates that, in ongoing proceedings pending settlement, the ruling is fully effective, and therefore the tax authority must apply the rules prior to the Royal Decree-Law 3/2016 declared unconstitutional, whether or not that unconstitutionality has been alleged by the taxpayer in the course of the proceedings.
However, the Tax Agency also understands that the files relating to assessments or rejections of requests for rectification of self-assessment pending resolution in the corresponding appeals for reconsideration, claims or contentious-administrative appeals at the date of the judgment, would not benefit if the unconstitutionality of the rule was not alleged at the time. This interpretation is, to say the least, debatable if one takes into account that the Constitutional Court has only indicated that at the date of the ruling the corresponding appeal or request for rectification must have been filed and that it seems doubtful that the Tax Agency, when executing a ruling, can issue an assessment in which it applies a rule declared unconstitutional, even if the taxpayer has not alleged such unconstitutionality.
On the side of favourable news in this area, the Supreme Court has recently issued ruling 339/2024 of 28 February 2024, in which it has concluded that, when the Constitutional Court does not limit the effects of the unconstitutionality of a tax, taxpayers may challenge the final and consented assessments through the special procedure of nullity of full nullity of Article 217.1.g) of the General Tax Law (except, for example, in the case of situations resolved by final judgments with the force of res judicata).
Having said all of the above, among other practical questions of interest (for those cases in which there is a right to a refund of the tax declared unconstitutional), the question arises as to when this refund should be temporarily imputed to Corporate Income Tax, (i) in the year in which the tax that is the object of the refund was booked and paid, or (ii) in the year in which the refund is received. The significance of one or the other possibility is undeniable, given that in the first case it could be income corresponding to prescribed years, in which case it will not be taxed under the aforementioned tax.
The Supreme Court has opted for the first solution in its rulings 2984/2010 of 25 March 2010, 4046/2010 of 25 May 2010, 5556/2010 of 27 October 2010, 5962/2010 of 10 November 2010 and 7340/2011 of 7 November 2011. According to the Court, the payment of the tax subsequently declared unconstitutional is undue ab initio, insofar as the effects of the unconstitutionality of the rule are not constitutive of the right to a refund of what has been unduly paid, but merely declaratory.
The National High Court, however, has clarified, in judgment 2988/2021 of 23 June 2021, that the criterion of imputation will depend on whether or not the Constitutional Court has ruled on the effects of the declaration of unconstitutionality of the rule. According to the National High Court, if the Constitutional Court expressly limits the effects of the declaration of unconstitutionality, the imputation of the revenue must be made in the year in which the tax refund is received; This interpretation is debatable (accepted by the Central Economic-Administrative Court, among others in its recent decision 00/00434/2021/00/00/00 of 18 December 2023) because it would be confusing the temporary effects of the invalidity of the legal rule under review with the repercussion of said unconstitutionality on the accrual of the refund in the Corporate Income Tax.
However, the Supreme Court has recently handed down rulings 200/2024 of 6 February 2024, 224/2024 of 8 February 2024 and 238/2024 of 12 February 2024, in which it concluded that refunds of taxes declared contrary to European Union law must be temporarily imputed to the taxable income of the year in which the tax in question was paid. In its analysis, the Court refers precisely to its case law on refunds of taxes declared unconstitutional, so it is possible that this is the criterion that will be consolidated (although we cannot ignore the fact that the Court of Justice of the European Union does not usually limit the effects of its judgments, so it cannot be ruled out that the Supreme Court will adopt another solution). We will have to wait for new rulings, if any, to reach a definitive conclusion on the matter.
