The Economic Agreement is the legal instrument (Law 12/2002) governing tax and financial relations between the Spanish State and the Basque Country. It recognises the power of the foral councils of Bizkaia, Gipuzkoa and Álava to maintain, establish and regulate their own tax systems, and the Basque Country's obligation to contribute to the State's general burdens through the quota (cupo). It also sets the connection points that determine which administration is competent for each taxpayer and tax.
In practice
What the Economic Agreement is
The Economic Agreement is the piece that makes the Basque foral regime possible: a negotiated law between the State and the Basque Country (today, Law 12/2002) that grants the historical territories the power to maintain, establish and regulate their tax systems, and organises the coexistence of five treasuries (three foral, Navarra’s and the State’s) through connection points.
Its balance closes with the quota: the Basque Country’s annual contribution to non-transferred State functions. The system enjoys constitutional protection under the first additional provision and a history of more than a century, since the first agreement of 1878.
What it means for the taxpayer
For individuals, the connection point is habitual residence: a resident of Bizkaia pays income tax to the Hacienda Foral of Bizkaia under Norma Foral 13/2013, not under the state LIRPF. Substantial differences in scales, deductions and special regimes follow, including the displaced workers regime of article 56 bis, the foral counterpart of the Beckham Law.
For companies, the connection points combine tax domicile and turnover, and determine both the applicable legislation and the auditing administration. Conflicts are resolved by the Agreement’s Arbitration Board.