CJEU decision opens doors to reclamation of EUR13bn tax collected from “Healthcare Cent”

Javier Blázquez, Baker & McKenzie, Spain  

Javier Blázquez is Associate at Baker & McKenzie in Barcelona

February 27, the Court of Justice of the European Union (CJEU) published its judgment in Case No. C-82/12, declaring the Spanish regulations on the Tax on Retail Sales of Certain Hydrocarbons (IVMDH), popularly known as the “healthcare cent” to be contrary to Community law. This examines the nature of the IVMDH, how this tax made it to the CJEU, and the consequences which the judgment may have on Spain's Public Treasury.  

I. What is the healthcare cent?

In 2001, the creation of a new tax was planned within a new framework for financing the Autonomous Communities. It would be granted to and collected entirely by the Autonomous Communities. This was the IVMDH.

The tax was, in the end, defined in Article 9 of Law 24/2001, of December 27, on tax, administrative, and social order measures. The healthcare cent was introduced primarily to provide the Autonomous Communities with a financial instrument to cover the expense generated by the public healthcare system (which is a governmental power generally transferred to the Autonomous Communities by the Spanish State).

The healthcare cent is an indirect tax on the consumption of fuels, and it is passed onto the consumer by the service stations, regardless of whether the consumer is a company, a professional, or a final consumer.

The Autonomous Communities which were the first to apply the tax were Madrid, Cataluña, Castilla-La Mancha, Galicia, the Comunidad Valenciana, and Asturias. The tax, between EUR0.012 and EUR0.048 per litre of fuel, was implemented in 13 of Spain's 17 regions.

Therefore, the consumption of fuel was subject to three taxes in Spain:

1. the Value-Added Tax (VAT);

2. the Hydrocarbon Tax (IH); and

3. the IVMDH in the Autonomous Communities that applied it.


However, the Spanish Parliament (after the reasoned opinion issued by the Commission in 2008, formally requesting that Spain adjust the regulations on the healthcare cent to Community law and predicting a possible unfavourable ruling by the CJEU) amended the regime of the healthcare cent by means of the General Budget Act for Fiscal Year 2013. Nevertheless, from the practical point of view, the amendment of the healthcare cent consisted mainly of the elimination of the IVMDH and its subsequent integration in the Hydrocarbon Tax.

II. Background to Transportes Jordi Besora, S.L.

The company Transportes Jordi Besora, S.L., which engages in the transportation of merchandise and has its establishment in Cataluña, paid EUR45,632.38 for the healthcare cent.

The company held that the imposition of the tax was not in accordance with Directive 92/12/EEC, of February 25, on special taxes, and requested that Spanish tax authorities return the amount paid. The tax authorities refused, and the case made it to the Higher Court of Justice of Cataluña, which sought a preliminary ruling by the CJEU on the compatibility of the healthcare cent with the Community regulations on hydrocarbons.

III. EC framework for indirect taxes other than the IH
A. Directive on special taxes

The European Directive on special taxes acknowledges that the member states have the power to introduce indirect taxes which are not harmonised with EC regulations on products already subject to special taxes, provided that they meet two conditions:

1. that the tax have a specific purpose; and

2. that it respects the applicable rules on special taxes or the VAT in order to determine the taxable base, the assessment, the taxable event and the monitoring of the tax.


B. CJEU. Case No. C-437/97, EKW and Wein & Co.

In 2000 (two years before the healthcare cent came into effect), the CJEU declared an Austrian tax on drinks to be contrary to Community law. That case was in many ways parallel to the regime of the healthcare cent. In addition, it is a ruling often invoked by the CJEU in its pronouncements.

IV. CJEU judgment

Based on the above, the CJEU declared the healthcare cent to be incompatible with the Directive on special taxes, as it fails to meet the two requirements established in the rules for unharmonised taxes.

The CJEU specifically points out the following:

(i) The healthcare cent does not have a specific purpose. The CJEU considers that an exclusively budgetary purpose does not constitute a specific purpose. The CJEU also points out that assignment of the income from the healthcare cent to cover certain public expenses is a means of internal budget organisation in Spain and is not sufficient motive to be deemed a specific purpose, since accepting this consideration would allow any purpose pursued by the member states to be considered specific. This would bring about the collapse of the effective harmonisation of the special taxes provided for in the Directive.

(ii) The healthcare cent does not meet the second requirement under the Community regulations, as it does not respect the general system of special taxes or the VAT to determine the amount to be collected. Specifically, the healthcare cent is to be paid when the hydrocarbons are sold to the consumer. In contrast, special taxes are paid when the product leaves the excise warehouse and the VAT in each phase of production and distribution.

V. Consequences of the ruling for Spain

According to the Government's official figures, EUR13 billion was collected as the healthcare cent from 2002 to 2012.

The Spanish Government requested that the effects of the ruling (if it were determined that the healthcare cent were contrary to Community law, as has finally proven to be the case) be limited in time due to the devastating effect it would have on the finances of the public healthcare systems of the Autonomous Communities. The CJEU refused, saying that that would be an exceptional measure in light of the bad faith of the Spanish Government agencies which maintained the tax for more than 10 years, even after the Commission opened formal procedures in 2003 following the healthcare cent's coming into effect in Spain.

In summary, the tax would be returned under the following conditions:

• that the taxpayers requesting the return of the tax have the pertinent invoices; and

• a specific timeframe for the returns.


Accordingly, the possible recovery of the tax can be made by the following means:

• A procedure for the return of monies unduly paid, which would cover the last four years. From a practical point of view, this would be from March 2010 to December 2012 (the date on which the healthcare cent was integrated into the IH).

• A longer and more complex procedure would involve reparations by the Spanish State, which would allow the return of monies paid in timebound fiscal years. There is a one-year deadline from the publication of the judgment to pursue this path.


VI. Conclusions

The repercussions of the judgment for the Public Treasury could be serious, although the amounts actually returned will be far less than the EUR billion collected. This is due to the obstacles mentioned above, such as keeping the invoices, limiting returns of the tax to four years, and uncertainty regarding returns of monies paid prior to March 2010 under the reparations procedure of the Spanish State.

Javier Blázquez is Associate at Baker & McKenzie in Barcelona and can be contacted by email at: Javier.Blazquez@bakermckenzie.com