The Economic Agreement is the traditional system by virtue of which tax and financial relations between the Basque Country and the Spanish State are settled, as laid down in paragraph 1 of article 41 of the Basque Autonomy Statute:
“Tax relations between the State and the Basque Country will be regulated by the traditional regional system of Economic Agreement or Agreements “
The Economic Agreement currently in force settles the tax relations in Chapter I and the financial relations in Chapter II, first, laying down the general rules applicable to them and, second, establishing the methodology for determining the Quota, which, together with the agreed taxes, are the crux of the financial system of the Basque Country.
a/ General rules
First of all, Section 1 of Chapter II, sets the general principles, which shall govern financial relations between the State and the Basque Country, pointing out the following ones:
- Fiscal and financial autonomy of the Institutions of the Basque Country in the development and execution of its competences.
- Respect for the principle of solidarityin the terms laid down in the Constitution and in the Statute of Autonomy.
- Coordination and cooperation with the State in matters of budgetary stability.
- Contribution by the Basque Country (quota) to charges of the State not assumed by the Basque Autonomous Community, as determined by the current Economic Agreement.
In addition to the abovementioned principles, there are two others applicable to the local entities or municipalities of the Basque Country. One of them affects their autonomy level and the other their participation in the State collection of non-agreed taxes:
- The faculties of financial supervision exercised by the State at any time in matters concerning municipalities shall correspond to the competent Institutions of the Basque Country, without this being construed to mean, in any way whatsoever, that the Basque Municipalities shall have a lower level of autonomy than that enjoyed by those under the common regime.
- In cases of indirect contribution of the State through a participation in revenues from taxes not covered by the Economic Agreement, the Territorial Governments of the Historical Territories shall distribute the amounts which, pursuant to the general apportionment rules, correspond to the Municipalities in their respective Historical Territory.
As well as the enumeration of the mentioned principles, Section 1 of Chapter II, articles 49 and 50 of the Economic Agreement, lays down the legal definition of the Quota, its periodicity and its updating conditions and establishes the obligation to approve a law to determine the methodology to be used in setting the quota every five years, the quantification of the Quota for the first year of the five-year period and the updating system for each of the years following the first.
b/ Methodology for determining the Quota
Section II of Chapter II of the Economic Agreement settles the basic principles of the methodology to determine the Quota. Therefore, it specifies the charges of the State which shall be regarded as non-assumed by the Autonomous Community, sets the mechanism in order to improve the system for estimating the public revenue from direct taxation, from the Value Added Tax and from Excise Duties attributable to the Basque Country. Moreover, it fixes the amounts to be subtracted from the quota for compensation purposes and determines the rates to be applicable in order to make the attributions.
Finally, this Section regulates several aspects related the payment of the Quota, such as the effects on the quota due to variations in transferred competences, the provisional and final settlements of the annual quota and the instalments for payments.
As mentioned, the Economic Agreement sets the approval, subject to the prior agreement of the Joint Committee on the Economic Agreement, of a five-year period law in order to determine the methodology to be used in setting the quota, setting the quota for the first year, basis of the five-year period, and the formulas to update the quotas in each of the years following the first. The law currently in force is the 11/2017 Law, December 28, which approves the methodology to determine the Quota of the Basque Country for the five- year period 2017-2021.
If you would like to get a basic explanation of the Quota system, enter the Computer animation of the Quota. Press here: Computer animation of the Quota.
If you would like to get into the theoretical concept of the Quota and the adjustments in depth, press the following link: The Economic Agreement Financing System