“The new framework provided by the Constitution of 1978 created a climate favourable to a renewed Economic Agreement”
The new constitution came into force on 29 December, 1978. Provision One declared “protection and respect for the historical rights of the chartered communities”. It envisaged the creation of “autonomous communities”, with distinctions between historical and non historical communities.
So since 1981 the Basque Country has, by law, once again had its own Economic Agreement , envisaged as the mainstay of its autonomy. An overall quota was set for the Autonomous Community as a whole, based on contributions from the councils of what were now to be called its “Historical Territories”. Thus, after lengthy negotiations the funding to be provided by each council to the general coffers was set as follows: Vizcaya was to pay around 50%, Guipúzcoa 35% and Álava 15%.
The calculation of the new quota is radically different to that of 1878. In this case, “the payment is for the costs that, as the relevant powers have not been devolved, that Central Government continues to have in the Basque Autonomous Community, both for services based inside its territory and implemented outside it (for example, diplomatic service or the armed force), together with the contribution of the Community to the Interterritorial Compensation Fund”.
Its amount is calculated on the basis of three items: the spending of the central Spanish state in areas of authority not devolved, funds collected from revenues not included in the Agreement, and the deficit. These items are measured via an attribution index calculated on income in the Historical Territories relative to income in the state. The figure currently used is 6.24%.
Since 1981 the Agreement has been amended to bring it into line with changing times: e.g. in 1986 VAT was incorporated into it, and in 1997 the special taxes levied on tobacco, alcohol, etc. This period was not without its tensions, due mainly to problems of political coexistence between the central state and the chartered councils.
The Economic Agreement of 2002
“Since 2002 the term of validity the Economic Agreement has become indefinite”
The areas of authority of the central government were reduced and those of the Historical Territories were increased in regard to taxes on oil products, electricity, certain forms of transport, etc.
In recent years the Agreement has had to face legal challenges, especially from neighbouring regions. It has emerged unscathed from all the resulting processes, and can be said currently to enjoy excellent health in legal terms.
One of the main landmarks in the current Agreement is the setting up of a Board of Arbitration. The main job of this body is to settle any disputes concerned with the Economic Agreement that may arise between the central government and the chartered councils, with no need to resort to the courts of the justice system. The Board was convened for the first time on 30 July 2007.
The European Courts and the Ring-fencing of the Agreement
“The European Court of Justice has recognised the unique nature of the Economic Agreement in several Europe-wide rulings”
In recent years several rulings from European courts have recognised the unique status of the tax relationship between the central Spanish government and Basque institutions.
Landmark rulings include that of 6 September 2006 by the European Court of Justice on the Azores case, which admits the existence in the framework of the Community of regional tax frameworks The ruling by the same court dated 11 September 2008 acknowledged that the Economic Agreement and regional regulatory authority were admissible within the European Union.
These European rulings, along with others handed down by domestic courts, have given the Basque Economic Agreement a greater degree of legal certainty than ever before.
In In 2010 the Economic Agreement was internally ring-fenced by amending the basic legislation governing the Constitutional Court and the Judiciary. This amendment means that appeals against the details of the Agreement an now only be filed with the Constitutional Court and not with the Contentious-Administrative Courts as was the case previously.
2014: Inclusion of new taxes in the Agreement
“A number of changes have been approved in 2014 that will increase the number of taxes included in the Economic Agreement”
Act 7/2014 of 21 April introduced certain one-off modifications into the Economic Agreement and also extended its scope to the collection of six more taxes now levied in the area controlled by the central government: three that tax certain operations in the electricity sector, the Tax on Fluorinated Greenhouse Gases, the Tax on Deposits at Credit & Loan Institutions and the Tax on Gambling Operations.
2017: Further amendment to the Economic Agreement
“2017 saw the approval of a number of amendments to the agreed wording to include further connection points, eliminate constraints on areas of authority and include regulations on coordination and collaboration”.
Act 10/2017 of 28 December amended more than 20 articles of the Economic Agreement, entailing improvements in the ability of the provincial councils to manage taxation and in coordination between administrations, incorporated into the Economic Agreement. Thus, a connection point has been established for the new tax on the value at extraction of gas, oil and derivatives, and changes have been made in the connection points for certain withholdings and payments on account.
In corporation tax and VAT the threshold value for operations beyond which the tax is payable has been updated from €7 million to €10 million, thus making it simpler for small firms to pay taxes to only one administration. In both taxes, Euskadi also takes over authority over taxpayers whose residence for tax purposes is in the common administrative territory but who have carried out 75% of their operations or more in Euskadi. This eliminates the asymmetry that had hitherto led to these taxpayers only paying taxes in Euskadi if all their operations took place there.
From now on tax on inheritances and donations payable by the Basque heirs of deceased persons not resident in Spain will be paid in Euskadi. Tax on donations of real-estate properties located abroad will also be payable there.
Measures have also been taken to improve coordination and collaboration between the Basque and Spanish administrations and three new procedures have been drawn up in the area of the Board of Arbitration.
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