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An illegal tax

The European Court has quashed Spain’s levy on fuel, opening the door to massive claims

Though expected, the ruling is a humiliating one. The decision of the European Court of Justice that finds the “health cent” (a tax imposed on fuel to help finance the healthcare system – illegal, is a new blow to the prestige of Spain, and places the regional administrations responsible for collecting it in a tight corner. After the announcement of the position of the attorney-general, who considered the levy contrary to EU directives, a favorable ruling could have hardly been expected; but Spain has attempted to minimize the effects by asking that it be exonerated from returning the sums collected. Well, the ruling not only declares the tax illegal, but also allows claims to be filed against the regional administrations demanding the return (some 13 billion euros between 2002 and 2012). And it does this with a shattering argument: the bad faith both of the regional government of Catalonia, the region against which the claim was filed, and of the government of Spain, which was responsible for the tax scheme.

Indeed, the tax was first introduced in Catalonia and later extended to 13 of the 17 regions, in spite of the fact that a European ruling against a similar tax had already been passed in Austria. What’s more, the European Commission itself had warned against the measure in 2001, and had opened proceedings against Spain in 2003, for non-compliance with the directive on hydrocarbons. But the need to cover the growing healthcare deficit prevailed against what would have been the more prudent attitude, keeping in mind the warnings. Even at the time it was asked whether it was fair to implement an indirect tax of a specific-purpose nature to finance a healthcare system beneficial to the whole population, but falling only on those who consumed fuel. Among the latter, the tax fell unequally, given that it was particularly harsh on professional haulage firms. The Court indicates that a specific-purpose tax of this nature would be legal only if it were spent on purposes linked to the use of fuels – for example, on mitigating the effects of pollution.

The tax fell unequally, given that it was particularly harsh on professional haulage firms

Though the surcharge now declared illegal is no longer in effect, having been subsumed in the general tax on hydrocarbons approved in 2013, compliance with the ruling is fraught with great difficulties. Court claims for a refund of the tax can be made only by those who can accredit their payment of it. This is the situation of the haulage firms and self-employed truckers who, thanks to awareness of the case or for administrative reasons, had been keeping their receipts. But this can hardly apply to the millions of private persons who have paid the tax every time they have filled their tank. The possibility that the government might set up a general procedure for compensation comes up against obvious technical difficulties, as well as budgetary ones. But what is inadmissible is the reaction, dismissive and evasive, shown by both Spanish Finance Minister Cristóbal Montoro and the economy chief in the Catalan regional government, Andreu Mas-Colell. When things have not been done properly, you have to accept the consequences.

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