Solidarity Tax on Large Fortunes: Key Aspects

Last September 22, Ministry of Finance announced that the Government has reached an agreement for the creation of a new tax. The tax on large fortunes, or tax on the rich, will be levied on taxpayers with more than three million euros, some 23.000 people, under the pretext that at this time it is necessary: "to ask for a greater effort from large fortunes that translates into a benefit for the general interest". 

Although the approval of this tax is subject to its parliamentary processing and could be subject to modifications, its approval is not yet guaranteed, nor is its survival over time. In this note we will describe below the most significant characteristics: 

What is the nature and object of the tax? 

It is classified as a direct tax, personal in nature and complementary to the Wealth Tax, which is levied on the net wealth of individuals more than 3.000.000 euros. 

Who are the taxpayers? 

The taxpayers of the new tax will be individuals who have their habitual residence in Spanish territory, in relation to all their assets or rights of economic content, regardless of where they are located. 

Will it be applicable to non-resident taxpayers? 

Natural persons who do not have their habitual residence in Spain but who own assets or rights that are located in Spain will also be taxable persons. Also, those natural persons who have acquired their tax residence in Spain as a consequence of moving to Spanish territory for work purposes and who have opted to pay the Non-Resident Income Tax will also be taxpayers. 

What is its territorial scope of application? 

It is applicable throughout the Spanish territory without prejudice to the provisions of international treaties or conventions that have become part of the domestic legislation. With respect to the Basque Country and Navarre its application is excluded, although it is foreseen that its adaptation to this tax will be agreed in the Mixed Commission of the Economic Agreement with the Basque Country and the Commission of the Economic Agreement with Navarre. It is specified that it cannot be transferred to the Autonomous Regions. 

What is its taxable event and accrual? 

The taxpayer´s net worth must be over 3.000.000 euros, with the accrual date being December 31 of each year (therefore, in the event that the tax is approved before the end of this year, the years 2022 and 2023 will be the first years in which the tax settlement must be presented). 

It is presumed, except in the case of proof of transfer or loss of assets, that the assets and rights that belonged to the taxpayer at the time of the previous accrual form part of the patrimony. 

What is the taxable and net taxable income? 

The taxable base is the vale of the taxpayer´s net assets, which will be determined by the difference between the value of the assets and rights owned and the charges and encumbrances of a real nature, when they reduce the value of the respective assets or rights, and the debts or personal obligations for which the taxpayer is liable. 

In the case of personal obligation an in concept of exempt minimum the taxable base is going to be reduced by 700.000 euros. 

What is the tax rate? 

It is stated that the total amount of this tax, together with the personal income tax and the wealth tax, cannot exceed 60% for taxpayers subject to personal liability. 

Are there any exemptions? 

The new Tax declares as exempt the same assets and rights already contemplated in the Wealth Tax Law as exempt (Historical Heritage Assets, art objects and antiques, artist´s own work, household, goods, habitual residence, rights of economic content linked to social welfare systems, family business, etc).

Are there deductions and allowances in the quota? 

It is established that the deduction for taxes paid abroad is applicable in the same terms as those established in Article 32 of Law 19/1991, in the case of personal obligation to contribute. 

Finally, it is allowed to deduct the amount of Wealth Tax for the year actually paid. In this respect, it is important to consider that the new tax will have a greater impact on those who reside in autonomous communities where the wealth tax is discounted (Community of Madrid).

What will be the management rules? 

The obligation to file a tax return, to make a self-assessment and, if applicable, to pay the tax debt in the place, form and deadline determined by the Minister of Finance, who may establish the cases and conditions for filing the tax returns by telematics means. 

The totality of the data contained in the tax returns may be completed, accompanied by the documents, and supporting documents that are established and presented in the places determined by the Minister of Finance. 

What is its period of validity? 

The Tax is intended to be temporary, and its validity is limited to two fiscal years, although a review clause is incorporated to evaluate its continuity at the end of it. It is foreseen that the Tax will be in force as from this fiscal year if the law is published (as intended but the coalition Government) before December 31, 2022. In this case, given that the accrual will occur on December 31 of each year, the first self-assessment would take place between May and June 2023 (same filing period as the Personal Income Tax and Wealth Tax returns). 

Is the tax constitutional? 

The technical articulation of the tax raises questions as to whether it is in line with the distribution of tax competences between the State and the Autonomous Communities and with the principles of tax justice that should govern the tax system. These doubts could lead to an assessment of the possible challenge of the self-assessments filled for the Tax in order to request a refund of the amounts paid, in anticipation of a future declaration of unconstitutionality of the Tax. 

However, in order to reduce its economic impact in case it is finally approved, it will depend on an exhaustive analysis of the personal, family, patrimonial and tax circumstances of each client. 

At Gentile Law we offer complete advice in this area. If you have any questions or would like to know more information on this matter, please do not hesitate to contact our expert lawyers. 

Tax Team Gentile Law 

abogados@gentile.law

+34 91 435 45 19