Recently, the Constitutional Court has accepted for processing the unconstitutionality appeal presented by the Popular Parliamentary Group, in relation to the modifications that the General State Budget Law of 2021 introduced in the Wealth Tax.
If you have filed this tax in recent years, see how the possible declaration of unconstitutionality would affect you.
A little context, what is the current situation of the Wealth Tax?
This tax, in force since the 70s in Spain, taxes the assets of natural persons. Management is handed over to the autonomous communities, which regulate aspects such as the exempt minimum, tax rates, or applicable bonuses. In the Valencian Community the minimum exempt is 500.000 euros and the tax scale in its highest bracket applies a rate of 3,5%, the highest in all of Spain.
In the last decade this tax had been temporary, being extended year after year by the General Budget Law.
Why could this tax be unconstitutional?
The General Budget Law of 2021, instead of continuing to extend the tax as it had been doing, modified its content in two fundamental aspects: it increased the maximum marginal rate, and eliminated the temporary nature of the tax, making it permanent.
In this regard, the unconstitutionality appeal presented questions the previous modifications, arguing in the following sense:
- The increase in the tax rate has a confiscatory nature and violates the principle of economic capacity included in the Constitution,
- The route used to convert the tax from temporary to permanent was not correct, since this persistence over time is equivalent to the creation of a new tax, and this creation is vetoed by the General Budget Laws.
What is the probability that the tax will be declared unconstitutional?
First of all, it should be mentioned that last November the Constitutional Court (TC) dismissed the unconstitutionality appeal filed by the Community of Madrid in relation to the Temporary Solidarity Tax of Great Fortunes, of identical content to the Wealth Tax . The court rejected the arguments related to economic capacity and confiscatory nature, arguing that the confiscatory effect would only manifest itself in the event of exhausting the taxable income, that is, the value of the assets, which does not happen. Furthermore, it must be remembered that this tax on large fortunes came into force with the objective of the State collecting the taxation that some autonomous communities "missed" by subsidizing the Wealth Tax, as is the case in Madrid. This is not the case of the Valencian Community, where the Wealth Tax remains without a bonus. Precisely for this reason, here the application of the tax to large fortunes has virtually zero effect: since the Wealth Tax is higher, it is the one paid by those affected and not the one that taxes large fortunes.
Furthermore, the existing division between the conservative and progressive blocs within the Constitutional Court cannot be ignored, highlighted above all in the aforementioned ruling on the Large Fortunes Tax, with a strong private vote from the conservative sector, which could lead to a resolution in favor of the tax.
With this backdrop, we understand that the TC will foreseeably endorse the constitutionality of the Wealth Tax. However, until a ruling is made, the different alternatives available to the taxpayer must be considered.
In conclusion, how does all this affect you as a taxpayer?
The latest rulings of the Constitutional Court on tax matters (see, the unconstitutionality of the rules relating to the way municipal capital gains are calculated, or on the limitations on the compensation of tax bases or the impairment of losses of participations in the Corporate Tax ) are limiting its effects to the taxpayer, not allowing the rectification of declarations that benefit from the unconstitutionality of the rule after the ruling is issued. That is, only taxpayers who requested a rectification before the ruling can claim a refund of the payment of those taxes declared unconstitutional. With this new procedure, the taxpayer is being encouraged to submit the declarations and then request their rectification in order to recover the excess tax paid.
However, the presentation of a rectification request paralyzes the four-year prescription of the tax, allowing the Administration to have a longer period of time to verify the declarations presented.
Finally, in the event that the unconstitutionality of the Wealth Tax is declared, and only for the years 2022 and following, it must be taken into account that the Tax on Great Fortunes would tax the corresponding part that was not subject to taxation in the Tax on Wealth. the Heritage.
In accordance with all of the above, we consider that the taxpayer must evaluate in detail the pros and cons of submitting a request for rectification of the Wealth Taxes submitted since 2021. Given that it could be expected that in this case the TC will endorse the constitutionality of the Tax on Heritage, and that a rectification request extends the statute of limitations for four years, we cannot generally recommend that the rectification request be presented.
Arantxa Viñas
Tax Area Associate of TOMARIAL
