BackThe remarkable speed at which various procedures (legislative, administrative, or judicial) related to the Temporary Solidarity Tax on Large Fortunes (ITSGF) have taken place or are currently underway is particularly noteworthy. Firstly, the promptness in its legislative processing and parliamentary approval stands out. Secondly, the speed of its entry into force and effective application is observed. Similarly, its challenge before the Constitutional Court was swift, and lastly, the processing of the unconstitutionality appeals is no less agile.
ITSGF on the Constitutional Stage: Analysis and Perspectives
The Temporary Solidarity Tax on Large Fortunes (ITSGF) was implemented on December 29, 2022, through the approval of Law 38/2022 on December 27. Before three months had passed since its entry into force, five appeals of unconstitutionality were filed against it. The Constitutional Court began its first deliberation on the first appeal on October 24, 2023.
This tax, complementary to the Wealth Tax, is exclusively under state jurisdiction and was initially conceived with a limited duration. The regulation establishing it determined its validity for the first two fiscal years in which it will accrue from the date of its implementation, i.e., the years 2022 and 2023. Additionally, it foresaw that at the end of this period, the government would conduct an evaluation to analyze the results of the tax and propose, if necessary, its continuation or elimination.
Unconstitutionality Appeals Accepted by the Constitutional Court against the ITSGF
The Constitutional Court accepted the appeals of unconstitutionality filed by the Regional Governments of the Community of Madrid, the Junta de Andalucía, the Xunta de Galicia, and the Autonomous Community of the Region of Murcia, as well as by the Assembly of the Community of Madrid, against Article 3 of Law 38/2022.
The appealing administrations argued that Article 3 of Law 38/2022 could violate, among other issues, the financial autonomy of the Autonomous Communities and the constitutional block concerning ceded taxes. Additionally, they alleged a violation of the right to political representation (Article 23.1 CE), the principle of legal certainty (Article 9.3 CE), and the principles of economic capacity and non-confiscation established in Article 31 CE.
Although several appeals sought the provisional suspension of the regulation, the Constitutional Court decided to deny this measure in line with its doctrine (AATC 90/2010, July 14; 132/2011, October 18; 229/2014, September 23, and 267/2014, November 4). This doctrine establishes the impossibility of ordering the suspension of normative provisions with the rank of law in the field of unconstitutionality proceedings, except in cases of appeal to the Constitutional Court by the Government against provisions and resolutions adopted by the bodies of the Autonomous Communities (Article 161.2 CE).
Challenges of the ITSGF: Controversy in its Declaration and Perspectives before the Constitutional Court
Amidst uncertainty, the deadline to submit the first self-assessment of the Temporary Solidarity Tax on Large Fortunes (ITSGF) for the 2022 fiscal year began on July 1. However, the approval of the 718 form for this process was controversial, especially due to the modification of the rules for calculating the tax’s full quota through ministerial order, according to the Council of State’s opinion.
Just 20 days after the opening of the tax declaration period, the Council of State issued its opinion on the 718 form “Temporary Solidarity Tax on Large Fortunes,” disapproving of the modification of the rules for calculating the tax’s full quota through ministerial order. This generated uncertainty among taxpayers about how to proceed, given the doubts about a possible declaration of unconstitutionality.
Despite the uncertainty, according to data from the Ministry of Finance and Public Function, the government collected €623 million from around 12,010 fortunes in the 2023 fiscal year. Additionally, at the plenary session of the Constitutional Court on October 24, 2023, the appeal filed by the Community of Madrid against Article 3 of Law 38/2022 was included for deliberation and resolution.
Recently, some media reported on the report analyzed by the plenary on October 24, which supports the tax authority of the State to harmonize regional taxes. It is argued that the Solidarity Tax does not affect the capacity of the Autonomous Communities to generate their own income, as the Wealth Tax acts as an advance for the ITSGF and will only result in a payable quota when the Autonomous Communities have chosen to reduce their normative competencies in the Wealth Tax.
Constitutional Court Implications on the Future of the Wealth Tax
If the Constitutional Court had declared the tax unconstitutional, those who requested an amendment to their declaration could expect a refund of the tax paid in the coming months. However, Judgment 182/2021 of October 26 limited the effects of the unconstitutionality declaration of the “municipal capital gain” tax to specific cases. Despite dismissing appeals against the Temporary Solidarity Tax on Large Fortunes (ITSGF), uncertainty persists regarding the future of the tax and how the Tax Inspection will act in this regard.
Possible Permanence of the ITSGF: Fiscal Strategies and Challenges with Constitutional Endorsement
If the Constitutional Court supports the legality of the Temporary Solidarity Tax on Large Fortunes (ITSGF), it is likely to extend beyond 2023 and become permanently established, according to the Ministry of Finance’s statement. The measure aims to move towards a more progressive fiscal policy, demanding greater effort from those with higher resources as part of the government’s strategy to modernize the 21st-century tax system. In such a case, the Tax Inspection could examine elements to reduce the tax burden, especially the exemption for family businesses, to verify compliance and alignment with assets directly related to economic activity.
Tax Challenges in Spain: ITSGF and Future Implications
Taxpayers in Autonomous Communities with a bonus on the Wealth Tax (IP) quota must now annually meet exemption requirements for family businesses. Although the Constitutional Court does not identify unconstitutionality in the appeals, non-resident taxpayers, including those under the special “Beckham Law” regime, could challenge assessments based on potential violations of community law. If the ITSGF is not declared unconstitutional, it is likely to become permanent. A diligent review of tax compliance and financial structure, especially for family businesses, is recommended. Additionally, the question arises about future legislative initiatives for other decentralized taxes, such as the Inheritance and Gift Tax, emphasizing the need for greater consensus in the design of the Spanish tax system.
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