Law 51/2002 of 27 December approved the Reform of the Law Governing Local Tax Offices. This law extends to the local tax system and to participation of local entities in local taxes as key elements to contributing to achieving financial sufficiency.Financing through assignments from the State Public Finance Office is going to be arranged through differentiated mechanisms (the assignment of state taxes/participation in state tax revenue) for certain municipalities that present greater expenditure needs derived from the size of their population or their nature as the capital of a province or Autonomous Community, which means that they must provide a greater number of public services. For all other cities, the applicable model of participation in state tax revenues will be similar to the one currently in force.As stated in Section V of the Recitals of said Reform Law, it is endeavoured by said mechanisms to recognise the "increasingly evident nature of large urban centres as 'hot spots'. This situation generates greater financial needs derived from the strong pressure for the demand of basic and mandatory public services and from greater economic activity, which means higher revenue from the state taxes that encumber the various manifestations of the same." Cities with a de jure population exceeding 75,000 inhabitants or provincial capitals or capitals of Autonomous Communities will have the following ways of financing:
- Assignment of certain percentages of the collection revenues earned by the State in the IRPF, VAT and Special Production Taxes.
- Participation in the Complementary Financing Fund.
ith respect to all other municipalities, a model similar to the one currently in force will be applied, with the following reform elements:
As equity elements, participation will vary directly according to the expenditure needs of town halls and inversely according to their taxation capacity.
The population is kept as an indicator of those needs, and the strata and weighting coefficients that will be applicable are modified. The former are adapted to the strata considered in Article 26 of the Law governing the Local System Bases, which establishes the catalogue of minimum services that town halls must provide. The number of school units disappears as a presumed indicator of needs.
- As an element of co-responsibility, fiscal effort remains as a distribution variable, although its relative weight is reduced and it is equalled to that of the inverse of the taxation capacity, which should allow a more equitable model than what is currently applied.
- In general, the differentiated treatments maintained by the municipalities of Madrid, Barcelona, La Línea de la Concepción and the members of the extinct and inoperative Metropolitan Corporation of Barcelona and Metropolitan Area of Madrid disappear.
- As a financial security element, no town hall will receive an amount below what it may have obtained in the last year that the current model was applied (2003) for all participation concepts in State tax revenue. When applying this model in subsequent years, the amount of the compensation that is recognised for each municipality due to collection losses derived from the Economic Activities Tax reform will be added to said guaranteed financing.
Finally, specific treatment is included for touristic municipalities (1), for which a hybrid model of partial assignment and participation in State tax revenue is defined, in accordance with the aforementioned variables. The assignment is partial, to the extent that for these purposes the revenue from Taxes on Hydrocarbons and on Tobacco Products will be considered, which were not the object of assignment to the Autonomous Communities (2).The participation of each touristic municipality, which is determined according to the variables of population, fiscal effort and the inverse of the taxation capacity, will be reduced by the amount that results from evolving (in accordance with the State tax revenue) the assignment that is calculated for 2004, and it will be increased by the amount of the assignment corresponding to the subsequent financial year in question.It is a mixed model of Assignment and Participation. (PDF: approx 68 Kb)
- (1) Municipalities with a population exceeding 20,000 inhabitants and that may have a number of second homes exceeding the number of main residences, in accordance with the Census of Buildings and Homes, will be considered touristic. The specific treatment affects the municipalities that, meeting these conditions, would enter into the applicable scope of the participation model by variables.
- (2) They will be assigned 2.0454% of said revenues, an identical percentage to the one that will correspond to the municipalities included within the subjective scope of the tax assignment.