Wealth Tax – Challenging the tax returns for the years 2021 and 2022

Jul 28, 2023 | Tax Flash

In April 2021 the Constitutional Court admitted an appeal that questioned the constitutionality of the Wealth Tax following the reforms introduced by the General State Budget Law of that year.

The Wealth Tax was technically abolished in 2008 through the creation of a 100% rebate on its tax quota, but the economic crisis meant that its disappearance was short-lived and in 2011 and 2012 it was recovered through a measure that it had to be temporary. However, that temporary decision was extended year by year and since then the tax has been required until 2021, when the provision that determined its disappearance was definitively repealed by the General State Budget Law of that year, so that this year the tax has become indefinite and its disappearance is no longer envisaged.

In these circumstances, what is at issue in the appeal is the constitutionality of the following changes:

  1. The increase in the maximum marginal rate from 2.5% to 3.5%, which could breach the principle of non-confiscation established in Article 31 of the Constitution.
  2.  The repeal of the temporary nature of the tax, making it payable indefinitely, which would mean to the creation of a new tax in breach of the provision of Article 134 (7) of the Constitution, which prohibits the establishment of taxes by means of a General State Budget Law.

If the reforms are finally declared unconstitutional, the Wealth Tax returns of the fiscal years 2021 and 2022 should be rendered ineffective, and the tax payments paid would be refunded together with the corresponding interest for late payment, although at this point the doubt arises as to whether the Constitutional Court could establish limits to the scope of its ruling, as it did when it declared the unconstitutionality of the so-called municipal capital gains tax (“plusvalia municipal”), when it prevented those tax returns that had not been challenged until then from benefiting from its effects.

In view of the uncertainty surrounding this issue and in order to try to ensure the recovery of the tax if the appeal is finally upheld, it seems advisable to request the rectification of the Wealth Tax returns corresponding to fiscal years 2021 and 2022 before the ruling of the Constitutional Court, although it should not be forgotten that requesting the rectifications means interrupting the statue of limitation period for the tax, which will give the Tax Administration more time to check those two years, so in each case it will be necessary to assess whether the benefit of a possible declaration of unconstitutionality outweighs the consequences that the interruption of the statute of limitations may have.

As for the time at which the challenges should be made, after two years from their admission for processing, it seems that the resolution of the appeal should not take too long, although this is an uncertain question considering that in this case the Constitutional Court is not subject to compliance with any deadline.

Regarding the grounds of the challenge, the unconstitutionality of the rule that made it necessary to file it should be defended, an issue on which the Administration cannot pronounce itself as it is reserved to the Constitutional Court, and therefore, until the latter resolves the issue, successive challenges before different instances will be rejected.

In this sense, it would be advisable to prolong the duration of the administrative procedure as far as possible while waiting for the Constitutional Court’s ruling, trying to avoid the contentious-administrative procedure, which entails additional costs, as it requires the intervention of solicitors.

It should be borne in mind that the different instances that would have to be exhausted before reaching the contentious-administrative route would be the following:

1) Request the rectification of the tax returns before the competent Tax Management Office.
2) Appeal for reconsideration
3) Economic-administrative claim before the competent Regional Economic-Administrative Court.
4) Appeal to the Central Economic-Administrative Court (only for tax quotas over €150,000).

The purpose of this Tax Flash is to inform you that our law firm has already started to challenge these submitted Wealth Tax returns by individuals non tax residents in Spain in order to obtain the refund of the paid amounts (plus delay interests) we are at your disposal to discuss the issue in more detail.

To access the complete list of Mini Tax Bulletins (only available in Spanish) click on the image.