Spanish Constitutional Court declares several corporate income tax measures unconstitutional

On January 19, 2024, by means of its ruling 11/2024, the Constitutional Court declared the unconstitutionality of several Corporate Income Tax measures introduced by Royal Decree-Law 3/2016, of December 2, 2016, which aimed at increasing Spanish revenue and reducing the public deficit.

Summary of affected measures

Very briefly, the measures affected by the declaration of unconstitutionality are as follows:

• The stricter limitations introduced on offsetting tax negative operation losses for companies whose net turnover was at least €20 million in the previous tax period. Specifically, the limitation of up to 50% of the taxable base for taxpayers with a turnover of between €20 million and €60 million, and the limitation of up to 25% of the taxable base for taxpayers with a turnover of at least €60 million.
• The limitation on the application of deductions to avoid double taxation, so that the amount of the applicable tax credits do not exceed 50% of the full tax liability (cuota íntegra).
• Shares' impairments that had been deducted in previous years for tax purposes being included in the taxable base of the following five years (at a rate of 1/5 per year).

Nature of unconstitutionality

The unconstitutionality is based on the violation of article 86.1 of the Spanish Constitution, which prohibits measures adopted by decree-laws from affecting the rights, duties and freedoms of citizens regulated in Title I of the Spanish Constitution, such as the obligation of taxpayers to contribute to support Spanish public expenditure in accordance with their respective tax capacity.

The Constitutional Court considered that the measures introduced in Royal Decree-Law 3/2016 affect this duty of taxpayers, as they concern one of the pillars of the Spanish tax system (that is, Corporate Income Tax) and the modifications have a significant impact on structural elements of the tax, such as the taxable base and the tax liability (cuota íntegra).

The declaration of unconstitutionality made by the Constitutional Court means that the measures are null. However, the court limited the effects of this nullity, by restricting the situations that should be affected by the declaration of unconstitutionality.

In this regard – and in the same manner of its ruling 182/2021 regarding the tax on the increase in value of urban land – the court has established that the following situations should not be affected by the decision:

• Those corporate income tax obligations that on the date of the ruling had been resolved by a final court decision or a final administrative resolution;
• Those tax assessments or self-assessments that had not been challenged by taxpayers on the date of the ruling (meaning those for which the deadline to file a claim had already expired).