B Law & Tax
14 November 2023

Tax advisor: Constitutional Court Ruling: Support for the Wealth Tax and Disagreements

The Constitutional Court backed the wealth tax, rejecting the appeal filed by the President of the Community of Madrid, Isabel Díaz Ayuso. The ruling, approved by seven progressive votes against four conservative ones, bases its support for the tax on the lack of confiscatory nature and the absence of violation of regional competencies. The dissenting justices argue that the tax was created through an amendment without connection to the corresponding law, causing a reduction in regional competencies and violating the principle of legal certainty by attempting to neutralize the deductions in the wealth tax applied by Ayuso.


Resolution: Financial Autonomy and Relationship with the Wealth Tax

Contrary to this, the resolution denies that the regulations of the tax affect the financial autonomy of the autonomous communities. It emphasizes that the wealth tax is complementary to the property tax, delegated to the autonomous communities, and that what is paid for the latter is deducted when calculating the quota of the new tax. The judgment underscores that the wealth tax does not modify the regional competencies related to the property tax, including the minimum exempt, the rate, and the bonuses decided by the Community of Madrid.

Furthermore, the resolution highlights the lack of identification of regional competencies affected by the contested tax and supports the perception that the true concern of the Community of Madrid is that residents with assets exceeding three million euros will have to pay the new state tax, affecting Madrid’s fiscal attractiveness for that wealth. The judgment argues that the goal of the Community of Madrid cannot prevent the State from exercising its competence to establish new taxes since the Constitutional Court has previously recognized that the State can occupy a regional fiscal space to harmonize, especially in its own fiscal space.


Validation of the Tax Rate and Lack of Proportionality

The judgment supports the high tax rate of the new wealth tax by arguing that it would only be confiscatory if it depleted the value of the assets, not the generated income. The lack of data on the alleged lack of proportionality of the tax rates reinforces the ruling, citing statistics showing an effective tax rate below 0.5% of the value of the taxed assets, deeming it not disproportionate. Regarding the alleged retroactivity, the judgment emphasizes that the tax is applied with reference to a specific date, not a tax period, thus avoiding a violation of the principle of legal certainty by taking effect without affecting ongoing situations.

As for the objection about the parliamentary procedure used to establish the tax, the judgment applies constitutional doctrine on the right to amend. It considers that the amendment complies with the homogeneity requirement by seeking public revenue, just like the law that originated the proposal, which created levies to address the energy and price crisis caused by the war in Ukraine. The dissenting vote, expressed by judges Enríquez, Espejel, Arnaldo, and Tolosa, argues that the Organic Law of Financing of the Autonomous Communities allows them to assume bonuses for the property tax, and the creation of the temporary wealth solidarity tax seeks to neutralize bonuses without following the proper procedure.

The dissenting judges also argue that the tax violates the principle of legal certainty since it applies throughout the entire 2022 fiscal year, almost exhausted when the law comes into effect, preventing taxpayers from arranging their economic relationships with sufficient time. The judgment emphasizes that the doctrine will apply to appeals filed by other communities and highlights the performance of the tax, which has collected 623 million euros in 2023, affecting 0.1% of taxpayers in Spain with an average fee of 52,000 euros.



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