Opinion on the possible unconstitutionality of the Wealth Tax

Below, we share the position of our office about the possible unconstitutionality of the Wealth Tax for the years 2021 onwards and the mechanisms to request its refund.

Since its creation in 1977, this tax figure has always been controversial since it taxes goods and capital for which taxpayers already paid taxes at the time of their acquisition.

Since then, and until 2020, this tribute has maintained its temporary nature, alternating between periods in which it was fully subsidised and others in which it was not.

However, a substantial modification occurred with the approval of the Law accompanying the General State Budgets of 2021 (Law 11/2020). This text modified Article 30 of the Wealth Tax Law (Law 19/1991), giving this tax an indefinite nature.

On the other hand, and always within the framework of the same Law 11/2020, another modification was added to the previous change that represented an increase in the maximum marginal tax rate, going from 2.5% to 3.5%. This increase in rates in the context of low-interest rates and exacerbated inflation causes the inability of many assets to generate returns, so in the end, a deterioration of taxpayers’ assets is produced.

In this regard, the Popular Parliamentary Group filed an appeal for unconstitutionality against these modifications, which was admitted for processing on April 20, 2021, and it is expected that the Court will rule on the matter soon.

This resource questions:

On the one hand, the transformation into an indefinite tax of a temporary nature using a tool not provided for this purpose. Article 134.7 of the Constitution establishes that “The Budget Law cannot create taxes. It may modify them when a substantive tax law so provides.”
On the other hand, a potential violation of Article 31 of the Constitution by considering the rate increase confiscatory in a context such as the one described above.

Although it is unknown what the Constitutional Court’s ruling will be in this regard, it is possible to consider the possibility of a favourable resolution. If this were the case, applying the tax for the year from 2021 onwards would not have proceeded, opening the door to requesting the return of the amounts paid in these years plus the relevant interest.

Although logic seems to indicate that we should first wait for the Court’s ruling to file the corresponding refund requests subsequently, we cannot forget the unique criterion applied by this institution concerning the tax on the Increase in Value of Urban Land ( also known as municipal capital gains). Indeed, this is a similar case in which the nullity of specific articles of the Local Finance Law was urged, giving rise to a favourable ruling for the taxpayers. However, only those taxpayers who, on the date of the verdict, had appealed the assessment or requested its rectification could benefit.

All of the above recommends that, if you consider the possibility of appealing the Wealth Tax returns for the years 2021 and 2022, you do so before the publication of the Constitutional Court ruling, the resolution of that should not be prolonged. However, it is not possible to know when it will be exactly.

It should be retained that filing this refund request will interrupt the limitation period, which, where appropriate, gives the Tax Administration more time to verify these taxes in the event of an unfavourable decision. Therefore, taxpayers must weigh the pros and cons of urging a refund.

Finally, we have prepared a campaign from the tax department to serve those who want to take advantage of this possibility. Our services include accompanying you throughout the different administrative instances (Management Office, Appeal for Replacement, Economic-Administrative Claim) while waiting for the decision of the Constitutional Court.