Compulsory Contributions: Taxes, Fees, and Special Levies

Posted on Feb 28, 2025 in Law

Compulsory Contributions: A Legal Concept

Compulsory contributions are a legal concept and a source of public revenue. They consist of economic payments required by a Public Administration (PA) when a set of conditions are met, for which an Act of Parliament established the obligation to contribute. Their primary aim is to obtain the resources needed to finance public expenditure. Apart from financing public expenditure, compulsory contributions could serve as an instrument of general economic policy and meet the accomplishment of the principles and aims contained in the constitution.

Main Features of Compulsory Contributions

  • Ability to Pay as a Prerequisite: Compulsory contributions cannot be confiscatory. Confiscation is a punishment that consists in being deprived of one’s assets as a result of a breach of the law. A compulsory contribution is not a penalty for an infringement, except when this contribution is an extension by a third party of a pecuniary obligation. Compulsory contributions and sanctions respond to absolutely different principles of justice: economic capacity and reestablishing of the violated order, respectively.
  • It applies not only to nationals but to whoever has economic dealings with Spain (Article 31.1 of the Spanish Constitution).
  • It’s the most relevant type of public revenue source of a public law nature. It is an obligation to pay money; compulsory contributions generally consist of a source of a monetary character, although they may also consist of a delivery of goods that possess non-monetary nature.
  • Required by a Public Administration: Tax rules introduce a set of rights and obligations whose main content is the payment of a determined sum of money. Payment is referred to the use of a right of credit and its corresponding obligation. Article 58.1 LGT establishes the main obligation of compulsory contributions of the passive subject: payment.
  • It is an *ex lege* obligation, which comes from public law, and its objective consists of an economic provision in favor of a public entity. An *ex lege* obligation is created by the will of the law (the legislative branch’s Act of Parliament), and the will of the taxpayer is irrelevant. The taxpayer only decides if they want to fulfill or not the factual prerequisites.
  • The public law content and regime cannot be altered by the will of the individuals; it is predetermined in the law. In theory, the PA has no power to decide how much a person has to pay and if they must do it or not; this decision belongs to the legislative branch.
  • Compulsory contributions aim at financing public spending but are also addressed for other public objectives, such as stimulating economic development.

There are three types of compulsory contributions: fees, special contributions, and taxes.

Taxes: Definition and Types

Tax: An obligation to pay, born with independence of an administrative activity. It is paid due to an ability to pay without the imposed obligation being connected to any administrative activity.

Features of Taxes

  • A payment without compensation (anything in exchange).
  • An *ex lege* obligation, not contractual but rather established by the law (Article 31.3 SC and 8 LGT).
  • The ability to pay of an individual is taken into account.
  • Not connected to any administrative activity.

Therefore, taxes are compulsory contributions required without consideration whose taxable event consists in operations, acts, or facts that reveal the existence of an ability to pay on the part of the taxpayer.

Types of Taxes

  1. Personal/Real:
    • Personal: The tax is established with reference to a particular person. It cannot be imposed without relating to a determinant person.
    • Real: Has an objective character independent from the personal element of the financial relation. It could be established by the norm without reference to any particular subject.
  2. Subjective/Objective:
    • Subjective: Subjective elements (personal circumstances of the passive subject) are taken into account at the moment of establishing the amount of the tax liability.
    • Objective: Personal circumstances of the taxpayer are ignored when calculating the amount of the tax.
  3. Periodical/Instantaneous:
    • Periodical: Continuous in time, taxes divided into periods.
    • Instantaneous: Tax which is exhausted by its nature in a determined period of time, which does not mean that it has a fleeting duration (e.g., payment of VAT in acquiring an immovable property).
  4. Direct/Indirect:
    • Direct: Means of imposing a legal norm that establishes the obligation of payment of a tax by a particular person to another person who doesn’t form part of a circle of the obliged ones in the financial relation, and there is no right of compensation.
    • Indirect: Imposes a financial norm that gives to a passive subject faculties to obtain from another person repayment of the tax.
  5. Fiscal/Extrafiscal:
    • Fiscal: Traditional taxes aimed at financing public expenditure.
    • Extrafiscal: Aimed at reaching other objectives, such as the creation of job posts.

Fees: Definition and Characteristics

Article 2.2 LGT defines a fee as a financial contribution which is imposed in case of private utilization or special exploitation of public domain, service delivery, or carrying out of activities in the scope of public law that affect and benefit individually a taxpayer. These activities or services are not requested or voluntarily received by those that are obliged and are not delivered by private entities.

The services delivered or activities carried out. Two hypotheses of a fee are emphasized by the legislator:

  1. Private utilization or special exploitation of the public domain: The utilization by an individual of goods belonging to the public sector or its special exploitation means that public entities have to grant an authorization or give consent prior to use. Consequently, an individual who wants to use, exploit, or take advantage of the public asset has to obtain an authorization by paying an appropriate fee. For example, the use of the streets by bars to put their tables outside so customers may sit in the open air. The imposition of the fee is the use or exploitation of the public good, which is done through concessions, authorizations, or other means of competent organs of the PA. There is no fee if the utilization of the good does not involve a personal economic benefit for the passive subject. Passive subjects are licensees.
  2. Delivery of services or activities in the regime of public law which affect or benefit in a particular way a passive subject: When the request for the administrative activity or the reception of the administrative service has an obligatory nature for the passive subject, it is not voluntary. Or, when the public sector is the only agent which is able to deliver a service or carry out the given activity. The realization of an administrative activity or delivery of a service in the public regime which affects a taxpayer is subject to the payment of a fee when those activities or services have not been voluntarily applied for, but whether because they are imposed by laws or regulations.

Differences Between Taxes and Fees

A tax is connected to an ability to pay (economic capacity) exclusively in relation to a person obliged and this person’s field of activity. A fee, on the contrary, consists of a situation which determines or necessarily relates to the development of an activity of the public entity. If there is no administrative activity, there is no fee.

The existence of an administrative activity itself is the criterion of differentiation between tax and fee since, in the imposition of the tax, there is no necessary condition of an administrative activity. In the fee, the principle of ability to pay (31.1 CE) is not applied, though a person pays in exchange for a utilization of a public service.

Differences Between Fees and Public Prices

Public prices are remunerations received by a public entity as a consequence of the delivery of a service or carrying out of activities when those are voluntarily requested by the taxpayers and produced by the private sector. In this case, the solicitor could opt freely between resorting to a public entity, paying the public price, or demanding it from the private sector, paying the private price.

By contrast, a fee differentiates from the price at least by the concurrence of two elements:

  1. It is an *ex lege* obligation which does not come from a contract, and it is a typical income and a resource of public law.

According to Articles 19 LTPP and 24 LHL, to set the amount of the FEE for private utilization or exploitation of the public domain, the market value has to be taken into account. The amount of the fee cannot exceed the real or foreseeable cost of the given service or activity or, failing these, the value of the provision received is the determinant factor.

Regarding public prices, Article 25 LTPP and Article 45 LHL establish the necessity to cover, as a minimum, the economic costs originated from activities or service delivery or a payment which would be equivalent to the utility derived from those activities.

Special Contributions

Article 2.2.b LGT states, “Special contributions are the contributions whose taxable event consists in obtaining by the taxpayer of a benefit or of an increase of the value of one’s goods, as a consequence of the execution of public works or establishment of the public services.”

Differentiating Special Contributions

  • Differentiates from the tax by the fact that in the special contribution, there is always an administrative activity.
  • From the fee, in the special contributions, administrative activity is aimed at satisfying the general interest.

They are regulated in Articles 28 to 37.

Main Features of Special Contributions

  • They are discretionary, established by public entities.
  • It is a common compulsory contribution of all public entities.
  • The taxable event is obtaining by the taxpayer of a benefit or increase of the value of their goods as a consequence of the performance of public works and expansion of public services of the local extent.
  • The legislator himself has listed the works and services which have a local nature and whose execution constitutes the taxable event. These are the following:
    • Those that some public entities order other entities to perform.
    • Those performed by the public entities or its dealers with economic contributions from the local entity.
    • Those which are done by the public entities inside the scope of their competences to reach the ends attributed to them.
  • The taxpayers are also legal and natural persons, as well as entities referred to in Article 35.4 LGT.
  • The direct causal link between the works done or services expanded and the benefit obtained by the taxpayers is strictly required.
  • The grounds of taxing, in accordance with Article 31 LHL, the taxable grounds of the special contributions is constituted, as a maximum, by 90% of the cost that the local entity bears for the realization of the public works and expansion of the services.
  • Once the quantity of the contribution is established, it has to be distributed among all the beneficiaries.

Non-Regular Compulsory Contributions

The LGT establishes that “parafiscal levies (*exacciones patrimoniales*) participate in the subject of the compulsory contributions if the specific norm fails.” The above-mentioned parafiscal levies are patrimonial public contributions and are subjected to a legal regime different from that of compulsory contributions. The parafiscal levies represent a serious insolvency of the state of law. They violate traditional financial principles, ignoring the principle of legal security.

They are public revenue sources that must be provided in an Act of Parliament since they are compulsory. There are public revenue sources that are not “economic obligations of a public nature.” There are “economic obligations of a public nature” (compulsory contributions). There are “economic obligations of a public nature” that are not public revenue sources (Temporary Labour Illness, STC 182/1997).