high-net-worth individualsIn a recent Informative Note, it has been made public that the Spanish Constitutional Court has dismissed an unconstitutionality appeal filed by the Madrid Regional Government against the Tax on high-net-worth individuals (THNW).

In the area of legal jurisdiction, the appeal considered that the new tax was against the financial autonomy of the Madrid Regional Government as well as the reserve to an organic law dealing with the transfer of taxes in relation to the Wealth tax. Besides, it considered that the constitutional principles of economic capacity and non-confiscatory were infringed since the tax rates of the THNW were very high.

  • In relation to the allegation that this tax was against the regional financial autonomy, the Sentence reminds that the THNW is complementary to the already existing Wealth tax, which is a State tax that has been transferred to the regions. The tax quote paid for Wealth tax is deducted from the tax quote of the new tax, which does not affect or interfere in any of the regional competences on Wealth tax. The minimum exemption, the tax rates, the tax credits as well as tax reliefs in Wealth tax still depend on the regional Governments, thus, the THNW does not imply any change.
  • The Regional government had also alleged that the tax rates were very high in relation to the profitability of the markets. The Sentence reminds that this THNW would only have a confiscatory effect if it exhausted the individual’s wealth, not income generated by the assets taxed, which is different from the economic capacity.
  • The Sentence mentions statistical data from the Spanish tax authorities according to which the effective rate of THNW is below 0.5% of the value of the assets taxed, hence, it cannot be considered disproportionate.
  • Lastly and in relation to its retroactivity, the Sentence mentions that this new tax does not apply in relation to a fiscal year but only by reference to a concrete date (31st December 2022 and 2023).
  • The Informative Note also reminds that the same doctrine shall apply to other appeals filed by the Regions of Andalusia, Galicia and Murcia.
  • All of the appeal’s objections were rejected although some of the judges did not vote for it as they considered, among other arguments, that THNW did infringe the principle of legal certainty and of protection of legitimate confidence given that it applied to all fiscal year 2022, which did not permit the taxpayers organising their economic relations well in advance.

Publicado el 11-2023 por PBS