BackThe Constitutional Court is currently evaluating whether the permanent inclusion of the Wealth Tax in the 2021 Budgets violates the principles of legal reserve and economic capacity. This measure has been contested, and a ruling is expected from the justices in the coming weeks.
The dispute revolves around the legality of permanently reintroducing the tax, as proposed by the government through the 2021 General Budgets, as well as the validity of previous annual extensions that kept the tax in place temporarily since its reactivation in 2011 through decrees.
Experts point out that the Court may face challenges in supporting the tax, as its implementation is questioned in relation to constitutional principles of legal reserve and economic capacity.
While the expectation is for a ruling unfavorable to the tax, there is uncertainty due to divisions between progressive and conservative justices in the Constitutional Court. Professor Juan Calvo Vérgez suggests that the Court has the opportunity to change its jurisprudence, which has been criticized, and notes that a challenge is also expected for the controversial extension of the Wealth Tax, recently approved without a specific deadline.
Wealth Tax in Spain: Evolution and International Comparison
In 1977, the Wealth Tax was introduced in Spain, initially as an exceptional measure, evolving into a structural tax in 1991. After a suspension in 2008, it was temporarily reactivated in 2011. Since then, governments have annually extended this tax through decrees until its permanent inclusion in the 2021 Budgets. This tax is uncommon in Europe, only existing in Norway and Sweden.
The “high tax rates” of the wealth tax are noteworthy, with a marginal rate of 3.5%, increased to 3.75% by Extremadura. Considering interbank rates as a reference, the tax made sense until the 1990s when rates were around 10%. However, since the 2000s, with rates between 4% and 0%, even becoming negative, a 3.75% tax seems disproportionate.
The marginal rate in Spain is considerably higher than that of other countries with wealth taxes, surpassing Liechtenstein’s 0.07%, Russia’s rate below 2%, or the 0.5% to 1.5% range applied by France before abolishing the tax in 2018, following the trend of countries like Austria, Denmark, Germany, or Sweden in recent years.
Legal Concerns about the Wealth Tax in 2021
The €1.352 billion collected in 2021 through the Wealth Tax from the country’s 201,775 wealthiest individuals raise concerns about the potential negative impact of an unfavorable ruling. The chances of an adverse ruling are increasing. The National Court is also involved in the case, where entrepreneurs argue against the annual extension of the tax between 2011 and 2020, as well as its structural reintroduction in the 2021 Budgets. They claim confiscation and violation of the European standard on income tax shielding.
In Summary
The Spanish Constitutional Court is evaluating a challenge to the Wealth Tax, questioning its permanent inclusion in the 2021 Budgets. The legality of the reintroduction proposed by the Government and previous extensions is under discussion. Experts suggest challenges to support the tax due to potential constitutional violations.
While an unfavorable ruling is expected, there is uncertainty due to divisions among justices. The Wealth Tax in Spain has evolved since 1977 and has a considered high marginal rate.
The collection in 2021 raises concerns about a potential negative impact in case of an unfavorable ruling.
The National Court is also involved in the case, where arguments against the annual extension of the tax and its structural reintroduction in the 2021 Budgets are presented, claiming confiscation and violation of the European standard on income tax shielding.
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