Temporary Solidarity Tax on Large Fortunes

Author: Montserrat Carol, Tax Lawyer at Bové Montero y Asociados

On December 28th, Law 38/2022 of December 27th was published in the Official State Gazette (“BOE”), which, among other things, provides for the Temporary Solidarity Tax on Large Fortunes (hereinafter, “ITSGF”).

The main features of the new tax are as follows:

• It is a state tax, which is applicable throughout the Spanish territory and its transfer to the Autonomous Communities is prohibited by the regulation. The taxable event consists of the ownership by the taxpayer of a net worth of more than EUR 3 million at the time of accrual of the tax, i.e., on December 31st.

• Taxpayers subject to this tax by unlimited liability are the tax residents in Spain for the totality of their net assets; and by limited liability, the non-residents for the assets and rights that are located, may be exercised or must be fulfilled in Spanish territory.

• Regarding exemptions, the regulation refers to the Wealth Tax Law (hereinafter referred to as “LIP”). The most notable are the exemption for family businesses; the exemption for the principal residence, up to a maximum amount of EUR 300,000; or the exemption for assets and rights related to professional activity, among others.

• An exempt minimum of EUR 700,000 is provided for, but only for those taxpayers with an unlimited liability, which implies an undue disadvantage for non-residents.

• Tax rates are set on a scale, consisting of three brackets:

• The amount of wealth tax paid will be deductible, and the regulation establishes a limit to the full amount, just as there is a limit for Wealth Tax.

• The taxpayer must carry out a self-assessment of the tax. As regards the deadline and form for the tax return, the order regulating these matters has not yet been published.

Although this tax aims to achieve greater revenue collection and harmonisation among the autonomous communities, both aims have been called into question. The revenue collection has been estimated at EUR 1.5 billion; however, in our opinion, the impact on the loss of appeal as a country to invest in will be more damaging than the potential revenue.

This is a controversial tax that could lead to litigation due to various aspects of its regulation. On the one hand, it has not been created by means of an organic law, which is why autonomous communities such as Madrid and Andalusia have announced that they will appeal to the Constitutional Court. On the other hand, the entry into force has been established retroactively for the fiscal year 2022, i.e., for the same year in which the regulation that governs it came into force, which clashes with the principle of non-retroactivity.

All in all, this is a tax that could be here to stay, since the regulation itself reserves the right to do so, even though it is initially temporary and will only apply in 2022 and 2023.