The historical evolution of the Economic Agreement tells us in detail about the course of its long existence.

Background

In 1526, the Commission in charge of reforming the Old Fuero of Bizkaia (1452) gathered at La Naja (Abando) and as a result the New Fuero of Bizkaia was laid out. It set the taxes to be paid by the population of Bizkaia to their Seignior, who, since 1379, was the King of Castile. It was clear that the Seignior could demand the payment of any other tax not included in the New Fuero, however, some other taxes were also paid, for instance, in order to fund institutions as the Juntas Generales. Each village paid the corresponding taxes collecting the due amount from the neighbours as to pay for the needed expenses, i.e. the maintenance of roads or the organization of supplies in case of emergency. Moreover, there was the ecclesiastical tax or diezmo, which was collected by either the clergy itself or by the outstanding laymen in Church. Nobility also collected their own taxes for the use of their properties, i.e. mills or bridges. Even the “Consulate of Bilbao”, association of traders established in 1511, collected its own tax: the rights for damages. Besides the abovementioned, in Bizkaia, on demand of the Seignior, a gift or voluntary payment, which became compulsory in many cases, used to be paid in order to finance part of the great expenses of the Spanish Monarchy during the 15th, 16th and 17th centuries.

The Segniory of Bizkaia, in order to obtain enough income for its expenses, divided proportionally the payment of the total amount among the neighbours of each village, who were taken into the census by each home or fireplace, this is the reason why the system was called fogueraciones (related to fireplaces). When the King unilaterally decided to increase his revenue implementing the so-called estancos, the social revolts or matxinadas used to rise up. A remarkable example of these revolts is the big riot, called matxinada de la sal, which took place in Bilbao in 1631, when the King tried to implement, estancar, a tax on salt. The previous year, an agreement on the representation of the different parts of Bizkaia in the Juntas Generales had been signed, the Concordia of 1630, and within the agreement it was also set the prohibition to implement duties as surcharges on the prices of food, drinks and products to make fire. However and in spite of the strong opposition, in March 1640 the need of revenue forced to implement the first common duty or Arbitrio in Bizkaia, which was 8 farthings maravedies per each quintal of iron. As how to collect this duty for the Segniory, the system applied was the one laid down in the New Fuero which allowed the villages to collect it. It required a sufficient majority of two thirds in Juntas Generales and a request to the Crown of the final approval. Once these requirements were met, the duty was implemented in the Segniory. The King’s representant in Bizkaia, the Corregidor, also had an important role in the tax administration because he was the one to authorise the proportional quotas and the payments.

This simple initial scheme was getting more and more complex, particularly during the 18th century, due not only to the increase of new gifts for the Crown but to the increase of the army expenses which were competence of the Deputations. In addition, from the middle of the 18th century, the Deputations started carrying out a new activity consisting of constructing roads. The first road constructed by the Deputation, along with the Consulate and Bilbao City Council was the junction, via Orduña, between Bilbao and Pancorbo, where the intersection with the main road to Madrid was. It was opened in 1771. The works required a great funding effort and, even though the Deputation had to pay only the third part of the expenses, new income had to be obtained in order to finance them. The solution was to collect a toll road whenever wagons, carts or horses passed by. In such a way that duties were gradually consolidated as the main system of financing the Institutions of the Seigniory. In 1804, the collection of the fogueraciones stopped as they were no longer a good financing source and new and higher duties, arbitrios, together with the toll roads were the only revenue of the treasury of the Seigniory. As duties were increasing the boxes system practice was being developed, this is to say, each duty was collected to the sufficient amount as to defray a particular expense. Since then, one can distinguish the General Box, the War “Exercito” or Army Box, founded in 1793, first to save the volunteer gifts made by individuals and then several compulsory duties, for instance the 6 per cent duty on income from trade activities and on income from property, which provided enough funds to guarantee the money borrowed from individuals; the Tobacco Box, from 1794, which contained the revenue for the duty on Tobacco; the Road Box which contained the duty on Wine and the Gift Box which contained the duties on sugar, on cinnamon, on cocoa and on cod.

It was in 1802 when all these revenues were centralized in the Treasury of the Seigniory, although the Boxes were functioning till the beginning of 19th century. In fact, the more duties they implemented the more Boxes they opened. The collection system was carried out either by public employees of the Seigniory either by the rental of their rents. The Tobacco Box was the only one whose duty was collected directly by a public employee of the Deputation: the Consultor. This specific situation of the Seignory of Bizkaia, together with the so-called sister provinces of Alava and Gipuzkoa, began to suffer from difficulties during the 18th century. Since the Bourbon King Philiph V took the Spanish throne, the Nueva Planta Decrees abolished the ancient fueros of almost all the areas that were formerly part of the Crown of Aragon and, therefore, the Basque territories were at that moment in an exceptional situation. In spite of the attempts to establish the customs uniformity, laid down in 1718 and annulled in 1720, which provoked a new matxinada, or of the attempts of the royal authority to intervene more directly in the operation of the foral institutions, it can be stated that during the major part of the 19th century the regime in the three Basque provinces continued without much difficulty. The beginning of serious problems dated from the end of the Convention War (1793-1895), during which the troops sent by the General Deputations didn’t make a good performance. The participation of the troops and other issues concerning the war were an extraordinary economic effort for the Treasury of the Seigniory. This effort was increased by the subsequent wars: the Independence War (1808-1812), the troubled implementation of the constitutional regime during the Liberal three-year period (1820-1823) and with more intensity during the First Carlist War. In addition, the Monarchy demanded more and more funds and as a result the economic problems of the Foral Deputations were getting more and more serious. The absolutist or liberal Deputations were obliged to obtain high financial resources in order to protect their legitimacy, the Kingdom’s or the nation’s one depending on the situation.

From 1794 to 1801 there was a big expansion of the tax system of the Seigniory: the implementation of new direct and indirect taxes and the creation of three new Boxes: War, Tobacco and Gift. The expenses were not only higher but there was also a bigger diversity. The services to the King or Gifts gave way to investments on coast defence, cannons, munitions, employees for the Deputations, which in the 18th century were about 40 persons, and new jobs were increased by virtue of the upraising tax reform.

The social and economic crisis, which took place at the end of the century, caused a higher lever of unsafety and poverty to the extent that expenses on social welfare and on public order were increased and the “Flying Squad”, origin of the Foral Police Forces, Miqueletes and Miñones, was founded. In the 19th century, the Treasury of the Seigniory had to be updated due to many different reasons as the war expenses, the establishment of the constitutional central treasury, the Mon and Santillán reform and the implementation of new accountancy systems (double entry) or the new budgetary system, containing deemed income and expenses. In 1815, as a consequence of the centralization of the treasury, the number of Boxes was reduced. The Road Box was in operation for a short period afterwards and finally the Tobacco Box closed in 1877. In 1842 the first draft of a Public Budget was laid down. The Budget was not published until 1864. However, serious difficulties arose when the absolutist monarchy was successfully taken over in 1833 by the constitutional monarchy in the person of Isabel II. At that time, when the Spanish nation-state was under a construction process surrounded by problems, the coexistence between a constitutional regime, based on the principle of equality before the law, and the Fuero and the specificity it involved was of great diffciulty. The first Carlist War (1833-1839) was a dynastic war during which the Fuero was an element of mobilization. The war ended with the Bergara Convention signed by the carlist General Maroto and the liberal General Espartero, who committed himself to find a solution to the foral issue for the government. The result was the Law of October 25th 1839 and the political and juridical principles of the Basque foral system in effect became constitutional in the Spanish framework, stating a future hearing of the Deputations in order to reform their regime according to the general interest of the nation. Once the Foral Deputations were reestablished, taxation was their main particularity. In 1841, several features of the foral tradition were definitely abolished after a failed upraising against Espartero, which the Basque Deputations supported. As a consequence inland customs were moved to the seaside. This particular system was based on inland custom posts mainly located in cities bordering the plateau of Castile (Balmaseda, Vitoria, Orduña), instead of custom posts located in harbours or borders with foreign countries, in such a way that imported goods into the Basque Country did not pay import duties until they were carried into Castile. These inland customs, known as the Ebro belt, were in operation with ups and downs during the Modern Era; however, the definitive integration of the Basque Country in the national market took place by Decree in October 1841. Another institution which was abolished was the veto of the Basque Representative Assemblies or pase foral, which implied all decisions made by the King or the government, had to be endorsed by the foral authorities and were only observed if they were not violating the Fueros. The particularities concering the constitution of City Councils were also abrogated as the obligation to organize municipalities according to the general law was imposed. The judicial competences of the local and foral entities were transferred to the First Instance Courts or Hearing Courts, Audiencias. The liberal state and its administrative organization of municipalities and courts was not in line with the traditional foral systems. However, the Foral Deputations, the General Assemblies, the gifts and the peculiar Tax on Tobacco kept being in force, once they were restored after Espartero’s defeat. For instance, in 1845 the Spanish State Treasury was deeply reformed, the so-called Mon and Santillan reform, establishing the basic pillars for the tax system up to 1977, but in Bizkaia it had a limited impact as most taxes implemented by the reform were not collected. In fact, the only income the State was obtaining came from gifts, customs levies, duties on mortgages and personal bonds.

The implementation of the Economic Agreement:

In 1876, after the second and last Carlist War, the Fueros were abolished but not completely. By the Law of 21st July 1876, Antonio Canovas del Castillo imposed the obligation for the provinces to make a contribution to the Treasury and to send men to the Army. A year later, due to the refusal of the Deputations to fulfil these obligations, Canovas announced the substitution of the Foral Deputations by Provincial Deputations, which were, to start with, of the same condition as the ones in the rest of the Spanish State. Canovas had to solve the problem of how to make the Provinces effectively pay their taxes in a State where there was nor administrative structure nor accurate statistics in order to assure the fulfilling of the obligation. The provisional solution was to reach an agreement with the Provincial Deputations, made up by lenient men who were not so unwilling to obey the Law of 21st July. By virtue of the reached agreement, the Deputations assumed the payment of the amount the Ministry of the Treasury could have supposedly collected by its own means. Therefore, the Deputations were in charge of the collection of the main taxes, in force at that time, which were included in the agreement. The validity period of the agreement was of eight years. This agreement was to be named Economic Agreement, due to the fact that in the preamble of the Decree of 28th February 1878, which implemented it, there was a reference to the obligation that the Provinces were included within the “economic agreement” of the nation.

As for the Deputations to be able to pay the due amount, it was required that they had the capacity to collect the agreed taxes, together with some duties, which were authorised in the Agreement, though, since before the war, the Deputations were collecting them. From this confused beginning, the Deputations had been able to maintain their particular status and also to adjust the new system to the changing circumstances of the State. In fact, In Bizkaia, after the Second Carlist War there was an intense demographic and economic increase, particularly on the banks of the Nervión. The incipient process of mining extraction, which started during the pre-war period, burst a few years later.

The expansion of the mining industry required new public works, i.e. trains and railroads or an enlargement of the harbour. The Deputation subsidized the railroads but, before the war, it had already financed its own railroad system, the Ferrocarril Minero de Triano, which gave service to the most productive mines at that moment. This railroad system, the only one of public ownership in Spain at the time, and the income it produced, allowed the Deputation not to collect any agreed tax for a period. It should be noted that from the end of the 19th century to the beginning of the 20th century, the mining extraction industry and the exportation of iron mineral to England, Belgium and Germany were at its peak. In addition, iron mineral was also sold to the local iron industry, and Altos Hornos de Bilbao, La Vizcaya and La Iberia, merged in 1901 into Altos Hornos de Bizkaia, S.A.

The subsequent new agreements or “Renovations”

The Economic Agreement, signed initially for a few years, was re-signed for the first time in 1886. The reason for this can be found in its undeniable advantages: the Ministry of Finance obtained some guaranteed and easy income without incurring in any expense. As long as the Deputations carried out the tax administration task and paid on time, as they used to do, there were no major problems.

On the other hand, the Deputations were still executing a wide range of competences, in most cases by virtue of the Economic Agreement, so they could maintain a high level of autonomy. For instance, their public employees were elected by themselves, they had the control of the accounts and budgets of the local entities and they didn’t have to inform of their own accounts and budgets to anybody (nor to the Ministry of the Governance, nor to the Court of Auditors). Besides, they were in charge of a wide provincial road network and each territory had their own provincial police force (in Bizkaia and Alava, the Miñones and in Gipuzkoa the Miqueletes), they financed the provincial welfare service, they gave grants for Fine Arts studies, they supported professorships, as the one in Basque language at the Instituto Vizcaino, Farm schools and so on. Summing up, the maintenance of the system was based not only on the mutual interest of both parts but also on the efficiency the Deputations showed in the execution of their competences, which was supported by the good results they obtained. The fact that the new mass political parties of the end of the 19th century and the beginning of the 20th century criticized the administration carried out by the monarchist that used to have the control of the Deputations didn’t mean they were against the Economic Agreement system as such. When these parties, socialist or nationalist, had a significant representation in the Deputation of Bizkaia, as a matter of fact, they did change some particular aspects concerning the administration but these changes never brought along a crisis of the agreed regime on the whole.

The changes in the Central Treasury involved amendments in the Agreement but the system soon turned out to be flexible enough to be amended. Therefore, after the first renovation of the Agreement in 1886, it had to be amended again, in 1893 because of several measures of reform implemented by German Gamazo, which finally led to the negotiation of a new Agreement the following year. From that moment, in 1894, the Ministry of the Treasury declared openly and officially the respect for the “economic and administrative independence” of the Deputations. By the nineties, the system settled down. In 1989, due to the war in Cuba and as a response to the demands of the Ministry to raise the Quota by means of some fix percentages of increase, the Deputations negotiated the payment of a Gift, just for that year, preventing the Quota from increasing in the following years. In 1900, as a consequence of the tax reform by Fernandez Villaverde, the Agreement was partially amended in order to agree a new tax figure, the Utilities Tax, which was mainly a tax on business profits. On this occasion, not only a new tax was added to the already agreed ones but also a clause was established by virtue of which the Basque companies set up so far, which operated in the rest of the State, had to pay taxes only to the Foral Deputations and not to the Ministry.

The more industrial and dynamic the Biscayan economy was, the stronger relation it had with the rest of the State. As a consequence, many companies started to have problems with their taxes as the Ministry was willing to tax on their profits generated in Common Territory, although it was impossible. A new Agreement was reached in 1906 and its validity was for a longer period than the usual one as it was signed for twenty years, with a little increase in 1916, after the first ten years of validity.

During the First World War (1914-1918), Spain was a neutral country and so, benefited from a high demand of products that the warring economies couldn’t produce. This was the reason why prices remarkably rose. At the same time, some sectors of the Biscayan economy, i.e. maritime transport or iron and steel industry, obtained the highest ever seen profits. In such a way that, the Quota, which was agreed in 1906 in a completely different economic situation, was not then in line with the great economic benefits which were being obtained.

Although the Triano railway was not so profitable as before and even made losses due to the progressive decline of the mines it was giving service to, the Deputation of Bizkaia had huge collections from the Utilities Tariffs. The results were obvious: schools in suburbs were founded, the expenses on roads increased, the duties on basic and essential goods were lowered, new cultural institutions were set up and financed, i.e. the Sociedad de Estudios Vascos/Eusko Ikaskuntza, Euskaltzaindia and so on. All these factors provoked a situation, at the time of signing a new Agreement in 1928, which made difficult for the Deputations to put forward the poverty of the territories- traditional justification of the foral specificity- in order to pay a proportionally small Quota. During those twenty years (1906-1926), population and richness had remarkably increased and, therefore, the Ministry made an attempt to collect in an alternative way, leaving the Quota aside, which consisted in collecting part of the Tariffs from the companies which operated in the Common territory, though their domiciles were settled in the Basque territories.

The Abrogation

During the following ten years after the last renovation, from 1926 to 1936, problems occurred continuously between the Deputations and the Ministry of Finance; problems which became more serious during the Second Republic and the process of discussion of the Statute of Autonomy. When the political obstacles were apparently removed, the fiscal ones turned up. In fact, during the summer of 1936 the discussion about the autonomous Treasury and its relation with the Economic Agreement was suspended without a solution. In July, General Franco raised his troops against the Second Republic and a bloody civil war started. The Deputation of Bizkaia continued its work of tax collection while the new Basque Government, organized in the autumn of 1936, was fully concentrated on the field of economic policy.

Franco’s troops took over Bilbao on the 19th of July 1937. In a few days (the 23rd of the same month), the Decree, which abolished the Economic Agreement with Bizkaia and Gipuzkoa, nor with Alava nor with Navarre, was published in the Official Gazette. This derogation was not only provoked by a wish of revenge but also because of the fact the Agreement was supposed to be too advantageous for Basque taxpayers. Moreover, it should be noted that the ones who finally won the war had an enormous necessity of income for the battle, so they chose the most immediate way: the abolishment of the Economic Agreement and the mere and forced establishment of the Central Treasury in Bizkaia. This Decree brought several consequences in addition to the loss of the own Treasury. It caused the lack of maintenance of most of the provincial roads, because the competence was conferred to the corresponding Ministry which clearly meant roads were abandoned, the closing down of schools, and the dissolution of the provincial police forces, Miñones and Miqueletes. Although immediately after the war, there were some attempts to restore the Agreement, being much stronger in the seventies, none of them succeeded.

The institutional prejudice or fear of potentially autonomous Treasuries with solid economic resources, in a context of a fully centralised and hierarchical State, as Franco’s dictatorship was, explains to some extend the failure of the different attempts. A few days before Franco died, the setting up of a special Commission for the study of a particular regime for Bizkaia and Gipuzkoa was approved. However, this was not the channel used for the restoration of the Economic Agreement. The political reform process, within the framework of the 1978 Constitution, meant not only the mere derogation of the 1937 Decree but the constitution of the Basque Country into an Autonomous Community.

A new era

The Constitution was approved in 1978 and its First Additional Provision guarantees the protection and respect for the historical rights of the foral territories, and at the same time the old Laws of 21st July 1876 and 25th October 1839, were abolished for the Basque Territories, in the part they might still be of some validity. In the new framework of the State, the Constitution foresees the set up of Autonomies (Title VIII), with initial differences between the historical and the ordinary ones, but in the Basque case, this process comes together with the respect for the historical rights. As Álava hadn’t lost its Economic Agreement regime after the Civil War, the starting point was, in a way, this Agreement dated in 1976 to be restored in Bizkaia and Gipuzkoa. In 1979, with the approval of the Statute of the Basque Autonomous Community, the traditional foral Economic Agreement regime was reestablished as the tax relations system between the State and the Basque Country, which was laid down by the Law of 1981. So since 1981, and after the negotiations among the central Government, the Deputations and the Basque Government, the old foral structure of the Deputations began to be reimplemented.

To start with, the Economic Agreement became the most outstanding particularity of the Basque autonomy and the Quota was fixed as a lump sum for the whole Autonomous Community, made up by the contributions of the three Historical Territories, The distribution of the payment among the three of them and the finance system of the expenses conferred to the common institutions was settled by subsequent agreements between the Basque Country and the Foral Territories within the framework of the subsequent Contributions Laws which determined how much of their tax collection the Foral Deputations had to transfer to the other levels of government, and how much of the Quota each Foral Deputation had to pay, being approximately 50 per cent for Bizkaia, 35 per cent for Gipuzkoa and 15 per cent for Álava.

The main difference between the Quota in 1878 and in 1981 lies in the fact that, in the first case, the Quota was equivalent to the amount the Ministry of the Treasury would have collected if the common regime had been the applicable one. In the second case, the Quota was the payment of the expenses the central government had to fund in the Basque Autonomous Community, either indirectly in case of services provided in the Community, either in case of services provides in the benefit of their inhabitants (for instance, diplomatic relations or the Army), besides their contribution to the Inter-territorial Compensation Fund.

In order to make the calculation of the amount to be paid as Quota easier, a formula, stated by the Law, was used. It took into account the expenditure of the State that benefited the residents in the Basque Country, usually called non assumed charges of the State, the revenue obtained in the Basque Country by the State and, as to prevent the Quota from meaning an added effort, regardless of the generation of effective resources by the State, the State deficit. The measurement of all these parameters was made using an imputation method. By virtue of the Economic Agreement, the attribution rate or imputation index of the Basque Country was determined in accordance with the income of the Historical Territories relative to that of the State and it was fixed in 6.24%. In addition to the Quota, the financial relations between the State and the Basque Country were also based in other financial flows, such as different adjustments to correct the income imputation or the share of the Basque Municipalities in the non agreed fiscal revenues.

Since 1981, the Economic Agreement has gradually broadened its scope, covering more tax figures and new challenges. As a matter of fact, in 1986, with the accessions to the European Economic Community, the Agreement was amended in order to include the Value Added Tax (VAT). In 1997, the Excise Duties (tobacco, alcohol and so on) were agreed and the legislative autonomy became wider in direct taxation (Personal Income Tax and Corporate Income Tax). One of the most obvious consequences of the 1997 partial amendment of the Agreement was the increase of the Quota. This new capacities weren’t enough to prevent the central State from taking tax regulations or Normas Forales regulating such competences to Courts. Indeed, leaving aside the political coexistence problems, the regulatory nature conferred to the Normas Forales, passed by the General Assemblies, made the appeals of these tax regulations to Court easier.

The 2002 Economic Agreement

The signature of a new Economic Agreement, by virtue of the 2002/12 Law, 23^rd May, implemented remarkable changes in the agreed system. Perhaps the most striking one from all of them is the abolishment of the traditional temporal validity clause, being, as a result, the approved legal text of permanent validity or duration. However, this is not the only and most outstanding feature of the 2002 Agreement but the fact that the exclusive competences of the Spanish State, which are vested in the import duties and import levies included under Excise Duties and Value Added Tax and in the High inspection of the Economic Agreement, have been remarkably diminished.

At the same time, it can be pointed out as really relevant the new competences conferred to the Historical Territories, deriving from new agreed tax figures, as the Tax of Income of Non-residents or the Excise Duty on Retail Sales of Certain Mineral Oils, the expansion of the regulation capacity in the less delocalized indirect taxation figures, i.e., the Excise Duty on Electricity or on Certain Means of Transport, or the increase of the business turnover up to six million euro in order to confer exclusive competence to the Basque Country in the Corporate Incorporate Tax, provided that the fiscal domicile is in its territory. In the Value Added Tax, there is also an expansion of the administration and inspection exclusive competences with the increase of the business turnover up to six million euros, also provided that the fiscal domicile is in the Basque Country. Moreover, the Agreement reached in 2002 stated a new composition for the Board of Arbitration which has turned out to be of major importance as has made finally feasible its constitution and operation.

Although it hasn’t been necessary for the Agreement to face a new negotiation due to its loss of temporal validity, unlike previous times, during all these ten years of implementation, the new Agreement hasn’t been operating fully in peace. Tensions, which have been really intense, haven’t been provoked by negotiation processes or by the Spanish State appealing to Court about the competences the Historical Territories are executing, but by the actions to Court of Institutions and stakeholders, as union trades or business associations, of neighbouring Autonomous Communities. These tensions have been finally solved with excellent results for the Economic Agreement and it can be affirmed that, after really hard times i.e, the judgement of the Spanish Supreme Court in 2004 or the previous procedures to the resolution of the Economic Agreement ruling by the European Court of Luxemburg in 2008, the Economic Agreement is nowadays at its peak of legal certainty, fitting unquestionably well not only within the legal Spanish framework but within the European Community one as well.

In 2007, the 28/2007 Law, October 25, implemented a partial amendment in the Agreement with the purpose of laying down the agreements on taxation of groups of entities in Value Added Tax and on the Excise Duty on Coal, as well as updating the bussiness turnover amount to confer exclusive competence in the Corporate Income Tax and in the Value Added Tax to seven million euro.

One of the landmarks of the current era of the Agreement is the constitution, for the first time since 1981, of the Board of Arbitration in charge of resolving all disputes arising between the central State or an Autonomous Community administration and the Foral Deputations, or vice versa, in relation to any issue concerning the Economic Agreement. Its establishment makes the extrajudicial procedure to solve conflicts be in force in response to the long term demands not only of taxpayers but of the Spanish and Basque tax administrations as well. Its setting up took place on the 30th of June 2007, being Carlos Palao Taboada, Fernando de la Hucha Celador and Isaac Merino Jara, the first arbitrators to make it up. In July 2009, after the resignation of Fernando de la Hucha Celador, the Board came again to standstill until November 2010, when Javier Muguruza Arrese was appointed as substitute arbitrator.

Another watershed in the development of the Economic Agreement was marked by the Spanish Supreme Court’s judgement of 9th of December of 2004, which regarded, by virtue of some apparent Community case-law, some elements of the Basque regulation of the Corporate Income Tax, among which the tax rate was clearly outstanding, as state aids, rejecting its nature of tax general regulations due to the mere fact that they were different form the regulation in force in the rest of the State.

Two years later, the 6th of September of 2006, the Decision of the European Court of Justice in the so-called Azores case, following the Opinion of the Advocate General Mr. Geelhoed, shed some light for the first time on the issue of the tax regional regimes and the Community legal system. This Decision sets the three parameters to measure the autonomy of infra state bodies as to be capable of laying down tax general measures: institutional autonomy, procedural autonomy and financial autonomy, rejecting the presumption that regional tax measures, just because of the fact that they are applicable only in a particular region, are automatically selective and regarded as state aids.

Based on the Azores Decision, the 11th of September of 2008, the European Court of Justice backed up the right adjustment of the Economic Agreement and of the foral autonomy to the legal framework of the European Union, regarding the Basque system to be in line with the Community regulations of state aids, which was the legal base to put the legislative capacity of the Historical Territories in respect to the Corporate Income Tax into question during the last years. This Decision gives response to the preliminary ruling referred by the High Court of Justice of the Basque Autonomous Community, when doubts in the interpretation of the Community Law the Supreme Court’s Sentence in 2004 rose.

This Court Decision is a turning point in the regulatory capacity of the Agreement, and a few months later, on the 22nd of December of 2008, the High Court of Justice of the Basque Autonomous Community dismissed all the pending actions against the foral regulations of the Corporate Income Tax, establishing a well grounded case law in support of the foral autonomy, which places the Agreement in a scenario, internally and within Europe, of high legal certainty.

The most recent landmark for the Agreement is the final answer to a historical demand, the one known as the internal “armour” or blindaje interno of the Agreement. What this term means is the demand for tax legal regulations, Normas Forales, of the Basque Historical Territories to be taken to Court, by virtue of the same parameters, conditions and requirements as the tax Laws approved by the central State, this is to say, to the Constitutional Court and not to the Contentious-administrative Court, as the Spanish legal system states.

To this purpose, the General Deputy of Bizkaia, José Luis Bilbao Eguren, led a proposal which made the General Assemblies of Bizkaia and the Basque Parliament to demand from the Spanish Parliament the amendment of the Organic Law of the Constitutional Court and of the Organic Law of the Judiciary Power, in order to correct the shortage of jurisdictional protection of the Basque Tax Normas Forales suffered. This demand was fulfilled by the 2010/1 Law, 19^th February, of amendment of the Organic Law of the Constitutional Court and of the Organic Law of the Judiciary Power, which entered into force on the 8th of March 2010.

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