Wealth Tax, which has been misrepresented on occasions as the tax which is levied on high-net-worth individuals or on the extremely wealthy, is currently in the news owing to the announcement, at the beginning of this year, of an emergency plan implemented by the Valencian Autonomous Community Government for the review and verification of returns filed for this tax, in addition to those returns which should have been filed, since it was reintroduced in the Comunitat in 2012, following its abolition in 2008.
But as is so often the case with “patch-up” laws, the abolition and reintroduction of this tax have led to a complex legal dispute which will result in many of the inspection proceedings announced ending up in court. This includes those which were initiated following the identification, by the Valencian tax authorities, of some 800 taxpayers who, having filed a return in 2007, failed to file one in 2012 despite being under the obligation, in principle, to do so.
This state tax, for which competence had been devolved to the autonomous communities, appeared to have become defunct when the Spanish Parliament approved law 4/2008 of December 23, 2008 whereby it was abolished. It was explained in the preamble to such law that the tax had lost its capacity to effectively accomplish its main objective, which was to improve distributive justice. The autonomous communities received an amount of 2,100 million euros in compensation in the base year of the new autonomous community financing system approved by Law 22/2009 of December 18, 2009, which was almost identical to the 2,122.4 million euros in revenues they had received from wealth tax returns for 2007. But the dramatic fall in the budgetary revenues of autonomous community tax authorities which resulted from the financial downturn led the Spanish government to re-introduce this tax, through the publication of Royal Decree Law 13/2011 of September 16, 2011. It was initially reintroduced for 2011 and 2012 although it was subsequently extended.
The Valencian Autonomous Community Government, exercising its legislative powers, opted not to levy this tax in 2011, although it did impose it for 2012 and subsequent years. The problem it is coming up against in its application, however (as has already been seen in the case of the inspections which have commenced), is that taxpayers are calling into question the decision to re-introduce this tax through a Decree Law, on the one hand because there were no extraordinary circumstances resulting in an urgent need, and on the other because it affects the duty to pay taxes (article 31.1. of the Spanish Constitution). In either case, the argument is that article 86.1 of the Spanish Constitution has been breached.
Similarly, as has been affirmed in the judgment handed down by the Court of Justice of the European Union dated September 3, 2014 (case C-127/12), the system of devolution of the tax to the autonomous communities, whereby non-residents are required to apply the state legislation, which is less favorable, may be in breach of the freedom of movement of capital guaranteed by article 63 of the Treaty on the Functioning of the European Union, to which article 139.2 of the Spanish Constitution is equivalent. It will be interesting to see whether the Spanish courts refer these questions to the Constitutional Court or to the Court of Justice of the European Union, as is being requested in the appeals filed. But is not only persons who consider they have been unfairly prejudiced by the effects of an inspection proceeding who can appeal against assessments raised by the tax authorities which increase amounts of tax self-assessed. Persons who have not undergone any inspection can also do so by submitting their own self-assessments for review (article 120.3 of the General Taxation Law) before they become statute-barred. Fulfillment of this requirement will be essential to be able to bring, where appropriate, an action for financial liability on the part of the State as legislator. This is due to the entry into force of laws 39/2015 and 40/2015, which introduce new rules which require the interested party to have obtained a final judgment in an appeal proceeding in which its claim of unconstitutionality or breach of EU law is rejected, with such claim having subsequently been accepted.
The foreseeable temporary effect, in the future, of a possible declaration of unconstitutionality is also likely to trigger appeals.
Garrigues Tax Department