INTRODUCTION.
The Spanish Draft Law for the Establishment of Temporary Taxes on Energy and Credit Institutions and Credit Financial Institutions (the "Draft Law") has been amended by the coalition government to achieve a "fairer" tax system. The " Draft Law " aims to create a new tax, the Temporary Solidarity Tax on Large Fortunes ("TSTLF") which, in fact, is a faithful copy, but with increased tax rates, of the Wealth Tax ("WT"), still applicable in several Autonomous Communities. The "new" tax will apply throughout Spain without exceptions.
The Draft Law was approved by the Spanish Senate on 21 December 2022 under the terms and conditions that were sent to it by the Spanish Parliament. It finally came into force on 29 December 2022, which means that the fiscal years 2023 and 2024 will, a priori[1], be those in which this tax will take force. The entry into force of this text is at least doubtful as to its compliance with Organic Law 8/1980, of 22 September 1980, on the Financing of the Autonomous Communities, since, in accordance with this Law, the WT was transferred to the Autonomous Communities and the TSTLF is no more than an imitation of the previous one. Thus, the question that arises is whether the State legislator can take away a tax competence transferred to the Autonomous Communities. This question will presumably be addressed by the Spanish Constitutional Court. However, a deep review of its content is required.
CONCEPT.
The TSTLF is a direct tax complementary to the WT, of a state nature, to levy an additional tax on the assets of individuals with a value of more than 3,000,000 euros. Its configuration basically matches with that of the WT in terms of its territorial scope, exemptions, taxable persons, taxable and net taxable bases, taxable income and tax rates, as well as in the limit of the total tax liability. The main difference lies in the taxable event. In addition, the tax liability actually paid may be deducted.
It has been configured as a temporary tax for two years, after which time an evaluation will be carried out to assess its results and propose, where appropriate, its maintenance or elimination.
PURPOSES.
TAXPAYERS.
KEY POINTS.
- It is defined as complementary to the WT as the tax actually paid in the WT is deducted from the TSTLF quota. In other words, it will be paid for the part of its assets that has not been taxed by its Autonomous Community[2].
- It also provides the possibility of deducting the amount of taxes equivalent to Wealth Tax accrued and paid abroad (only in cases of personal taxation).
- The rules for the valuation of assets and rights of Law 19/1991 of 6 June 1991 on WT (Chapter IV) apply. However, its verification is a state competence, so that the payment of the TSTLF on exempt assets or rights could be required in some autonomous communities. The State tax administration (AEAT) lacks experience in wealth taxation, and this can be a source of conflict with taxpayers, who are used to the criteria applied by the competent bodies of the Autonomous Communities[3].
- A minimum exemption of 700,000 euros is set for Spanish residents, so that those with assets of less than 3,700,000 euros will not pay this tax. Note that there is an obvious discrimination between residents and non-residents which, however, does not occur in the WT. Those assets that are exempt by virtue of Law 19/1991, of 6 June, on WT (article 4), such as the assets and rights of individuals necessary for the development of their business or professional activity, works of art when certain requirements are met, shares in the family business or the habitual residence, will be exempt.
- The text provides for a joint limit with personal income tax, only for residents, whereby the total taxable income (before deductions) may not exceed 60% of the sum of the personal income tax bases, subject to certain limits. Income from capital gains generated over a period of more than one year, such as an investment fund, will not be taken into account for this calculation. This discriminatory treatment of non-residents is contrary to EU legislation and to Article 14 of the Spanish Constitution, which we believe will be subject to assessment by the Constitutional Court. On the other hand, in relation to the joint limit of wealth with personal income tax that prevents the TSTLF from being confiscatory, it is not applicable to non-residents, who, by definition, do not contribute to the payment of personal income tax in Spain. The tax also applies to non-residents who hold their assets in Spain through Spanish or foreign companies. This phenomenon is usual in the case of large properties or luxury homes in Marbella, Mallorca or Ibiza, among others, although, in our opinion, avoidance tactics can be articulated with assumable risks.
- As with the WT, TSTLF taxpayers who are not resident in another EU or EEA Member State are obliged to appoint a representative resident in Spain.
- With regard to Double Taxation Conventions, the TSTLF would be a covered tax, provided that the DTC includes the WT in its scope of application. The amendment also proposes to modify the WT Law to include the consideration as being located in Spanish national territory, those securities representing any entity, whether resident or non-resident (not traded on organised markets), more than 50% of the assets of which are directly or indirectly made up of real estate located in Spanish territory. In this case, the applicable Double Taxation Convention will have to be considered.
- The tax rates would be as follows:
CONCLUSION.
The truth is that these amendments to the Draft Law raise doubts as to their adaptation to pre-existing legislation. In our opinion, it could give rise to conflicts at the constitutional level, as it is clearly out of line with some of the guiding principles of Spanish law and, specifically, with the system of autonomous regions. A detailed analysis of this new tax gives rise to numerous scenarios that are complex to resolve and discriminatory, not only against non-residents, but also against the legal security of taxpayers in general. Consider retroactive applications to issues already consolidated over time, even before the amendments. Hence, we anticipate judicial controversy in this area, and we dare say, with a certain guarantee for the taxpayer[4].
[1] We say a priori because after two years, it is possible that it will be maintained or removed.
[2] Bearing in mind that the taxpayer must have a net worth of more than 3,000,000 euros, calculated according to the WT rules. This will also affect non-resident WT taxpayers by virtue of DA 4 of the WT Law.
[3] The WT is a tax ceded to the Autonomous Communities, whereas the TSTLF is a state tax, and therefore different bodies check the declarations.
[4] As was the case when the EU Court of Justice and the Supreme Court had the WT Act amended (DA 4º).