(CN) - Spain should return the $18 billion it collected with an illegal fuel tax aimed at funding environmental and health programs, an adviser to Europe's highest court said Thursday.
Transportes Jordi Besora, a trucking company based in Catalonia, said it had been improperly forced to pay $63,000 in fuel taxes between 2005 and 2008. The company said the tax - used primarily to build new hospitals - violates the EU excise law, which generally prohibits member states from levying taxes on fuels unless certain conditions are met.
The high court in Catalonia asked the Court of Justice for the European Union to weigh in on whether the Spanish fuel tax met EU excise law standards. In his opinion for the Luxembourg-based court, Advocate General Nils Wahl said the tax fails to meet both requirements of EU law - the pursuit of a specific, nonbudgetary purpose and adherence to EU taxation rules.
For one thing, Wahl said Spain's stated purpose for the fuel tax - health and environment - pursues the same objective as that achieved by existing, EU-imposed excise duties. This overlap minimizes Spain's chances of showing that the tax serves a specific purpose, the adviser said.
"Such a construction would quite simply compromise efforts to harmonize the excise duty regime and give rise to an additional excise duty, contrary to the very purpose of the excise duty directive to abolish remaining barriers in the internal market," Wahl wrote. "Indeed, despite the broadly stated objective concerning the protection of public health and the environment, both instruments seem to serve the same budgetary purpose of meeting general demands of public expenditure in a specific field."
Wahl added that the structure of the tax fails to pursue a nonbudgetary agenda, given the lack of evidence that it aimed to curb the use of hydrocarbons or encourage alternative fuels. Meanwhile, the proceeds of the tax are being spent on purely budgetary items - building new hospitals, the adviser found.
The fuel tax fails the second requirement of adhering to EU taxation rules as well, according to the opinion.
"Under the excise duty directive, excise duty is to become chargeable 'at the time of release for consumption,' when the product leaves the last tax warehouse," Wahl wrote. "By contrast with that provision, the file shows that the Spanish tax is levied in connection with the retail sale of such products (which occurs after 'release for consumption' within the meaning of the excise duty directive)." (Parentheses in opinion.)
Spain also should not get to place a time limit on potential tax refunds in the event the tax is found illegal, the advocate general advised.
The government estimates the tax has generated about $18 billion, or 1.25 percent of the Spanish GDP - and a refund could destroy an economy already badly damaged by the worldwide economic crisis.
"The mere fact that a preliminary ruling may have significant financial consequences for a member state does not, as a rule, suffice to justify limiting the temporal effects of a judgment," Wahl wrote. "Any other conclusion would have the paradoxical effect of treating the most serious and most longstanding infringements most favorably."
Wahl rejected Spain's argument that it acted in good faith, saying that Spain knew the tax was illegal - having asked the European Commission for its thoughts before passage - but took a gamble anyway.
"Spain appears to have knowingly taken the risk of going forward with the legislation in question and, as a result, that legislation has been applied for many years to the detriment of the end-user and the internal market," Wahl concluded.
His opinion is not binding on the Court of Justice, which has begun deliberating the case.
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