Written on 20 February 2023 by Dan Hjortsø
We have previously written about the local Andalusian government’s initiative to remove the wealth tax in southern Spain and that at the same time, there were fears that the country’s government would introduce a wealth tax at state level. This fear became a reality when Law No. 38 of 27 December 2022 was passed. The law is a temporary measure but applies to the year 2022… The consequence is that you still have a wealth tax in Spain, the tax just lands in the State treasury instead of benefiting the region directly.
What does wealth tax look like today?
In 2022, Andalusia took advantage of the fact that the power to indicate a reduction in wealth tax has been delegated to the regions. The idea was to attract capital forces to the south of Spain and thus increase growth and tax payment via other routes.
Immediately after the Andalusian determination of a full reduction in wealth tax, the national government initiated Law 38 on December 27, 2022. Part of the law’s title reads “…impuesto temporal de solidaridad de las grandes fortunas…” and thus indicates that this is a temporary tax law that imposes solidarity tax on the wealthiest part of the population.
We can therefore talk about a wealth tax and a solidarity tax. The only difference is perhaps that the color has a different sound.
They were quick to get Law no. 38/2022 passed and did so before the end of the year. This means that you, as a resident and in certain situations as a non-resident, are obliged to pay solidarity tax if you on 31 December 2022 had a net worth of over 3 million euros.
This step meant that the regional Andalusian reduction of 100% of the wealth tax (read more here) no longer has the intended effect and that the tax instead of going to the Andalusian piggy bank now has to be paid to the State treasury.
Article 3 of the law states that this solidarity tax cannot be delegated to the regional regions (unlike the wealth tax), and at the same time sets the framework of this tax in a four-step tax ladder, where you would pay nothing of your first 3.000.000 euros, 1,7% of any amount within the next 2.347.998,03 euros, 2,1% of any amount within the next 5,347,998.03 euros, and finally 3.5% for any amount beyond that.
Thus, as an example, a person with a net fortune of 10.000.000 euros would be obliged to pay 137.608,01 € in taxes accordingly.
The regulation of the Solidarity tax is made in such a way that the reduction given in the wealth tax in the individual region is taken into account. In a region where a 100% reduction in wealth tax is granted, the state law thus takes full effect, and otherwise, the Solidarity tax is reduced by the wealth tax paid in the region.
Or in other words, the practical effect of the new law on solidarity tax is to avoid the application of regional reductions in wealth tax, for example in Madrid (100%), Andalusia (100%), and Galicia (25% in 2022, 50% in 2023) for net assets of more than three million euros.
With the new solidarity tax, the tax policy that the governments in the various autonomous regions have been practicing changes drastically and suddenly – and they are not too happy about that in Andalusia.
Tax war between regional and Spanish state governments
Since the answer to the title of this article is a clear “yes”, it is also something that the regional government cares a lot about, and they have therefore not been idle this winter. The defense has been prepared and the lawyers have been armed with good arguments.
A case has thus been prepared for the Spanish Constitutional Court, against the state law. Furthermore, although still unanswered, a request has been made for the suspension of the new state tax, so that taxpayers affected by the said tax are not forced to pay the tax while the Constitutional Court makes its decision.
The Andalusian government has argued in the case that the Spanish government is invading powers previously delegated to the regional governments, which, according to the Andalusian government, violates several articles of the constitution – not least the principle of legal certainty, which is contained in the constitution’s article 9.3.
The regional government has also argued that the new tax is a direct attack against the financial autonomy of the autonomous regions and especially against the financial autonomy of Andalusia.
The Andalusian government says that the law, with the stated aim of harmonizing the taxation of individuals’ wealth in the various regions under state auspices, invades the powers to regulate the tax that the individual regions have been delegated in relation to the wealth tax. This undermines the financial autonomy that the region has, cf. the Spanish Constitution, art. 156.1, and there is a violation of rules which are based on constitutional principles.
In this case, the local government argues that the Spanish government has broken the principles expressed in the regional financing law, the Andalusian Statute of Autonomy, Law 22/2009 on the allocation of state taxes to the regions, and Law 18/2010 on the transfer of state taxes to Andalusia.
It will be interesting to see whether it will be the conservative regional Andalusian government, with its policy of attracting investment forces to the region, or the Spanish government, with its more socialist principles of “broad shoulders should carry the most”, who will ultimately put on the winning jersey.
