Report on 2014 Tax Reform

Madrid, 12 March 2014.- The quality of tax systems is increasingly measured by the degree of legal certainty they offer. It serves little purpose to enact tax measures addressed to favouring productive activity and the creation of employment if their capacity to generate real results is reduced due to the lack of confidence of the economic operators regarding the subsequent interpretation and effective application of those measures by the authorities and regarding their stable maintenance over time.

Legal certainty has a value in itself, in being a central element of a State of Law: but in tax matters it is also a key factor for achieving the basic taxation principles of competitiveness, fairness and sufficiency.

The association of legal certainty with competitiveness is obvious. Corporate decisions on investment, contracting or financing, including the first and basic decision (whether or not to undertake a new economic activity), are mainly long-term decisions that give great consideration to the degree of confidence offered by the tax system. In addition, legal certainty favours free competition and thereby the effective assignation of resources.

The two most important studies on a worldwide scale which measure the determining factors of competitiveness of countries are the World Competitiveness Report and the World Competitiveness Yearbook, the first drawn up by the World Economic Forum (WEF) and the second by the International Institute for Management Development (IMD). In both studies, the confidence and stability of the legal system of each country is one of the basic aspects present in all the “pillars” of measurement of competitiveness.

The improvement of legal certainty also serves the principle of fairness, because it helps to avoid discriminatory or unjustified unequal treatments of persons or companies in similar objective situations.

In regard to the principle of sufficiency, in the medium and long term the collection capacity of a system based on legal certainty will always be greater – in propitiating the creation of wealth and the growth of the tax bases – than that provided by a volatile and unreliable system.

The Fundación Impuestos y Competitividad has identified those areas of the Spanish tax system to which the tax reform currently in progress should pay special attention in order to raise its quality from the perspective of legal certainty.