Blessed Council of State that, despite the illegal practices of the Treasury and despite its reports not being binding, has managed to uphold the Rule of Law in the assessment and payment of the Temporary Tax on Large Fortunes (“IGF”). The issue, which is not trivial, lay in the way the joint taxation limit between the Personal Income Tax (“IRPF”), the Wealth Tax (“IP”), and the IGF was calculated pursuant to Article 31 of Law 19/1991 regulating the IP, a regulation referred to by Law 38/2022 which introduced the IGF.
Thus, in accordance with the aforementioned provision, the combined taxation of these three taxes cannot exceed 60% of the sum of the taxable bases of the IRPF (with certain exclusions), and in case this limit is exceeded, the IP or the IGF must be adjusted downwards (since, depending on the Autonomous Community – as in the case of Catalonia – one could end up being taxed only for IP and not for the IGF). However, this reduction is limited to 80% of the IP/IGF tax payable, leaving an unavoidable 20% of the tax to be paid from the latter tax.
And it is precisely in the “tax” to be considered from the IP/IGF where the controversy and the great debate generated – now solved thanks to the consideration of the Council of State’s report – which has its origin in a serious error by the legislator, since it distorts the purpose of the IGF, which in theory was to harmonize the taxation of wealth in all Autonomous Communities, never to harm the residents of Madrid and Andalusia, who are adored by the central government.
The noted legislative slip-up was failing to specify in Article 3, paragraph twelve, subparagraph 1 of Law 38/2022, that in the aforementioned IRPF-IP-IGF limitation, the tax to be considered in IP was the “net tax”, because, by default, the aforementioned Article 31 of Law 19/1991 of the IP refers to the “gross tax” and the 100% exemption in IP that applies in Madrid and Andalusia is applied to the gross tax to determine the net tax.
After realizing the error and without blushing for breaking the principle of legal hierarchy, the Tax Administration dared to “clarify” the issue in the ministerial order approving the model 718 for self-assessment of the IGF. A ministerial order correcting an entire Law.
To rectify is wise, and the BOE of June 12 already refers to the gross wealth tax, but the Treasury’s ruthless and revenue-oriented approach towards taxpayers in Madrid and Andalusia has been exposed, and the consequences have been different from the intended harmonization, as residents in Madrid and Andalusia will only pay 20% of the IGF, Catalans will pay much more in IP for having practically equalized Pere Aragonès’ marginal IP in Catalonia with that of the IGF, increasing the IP by 26.5% – from 2.75% to 3.48% – for the already quite tortured – fiscally – Catalan taxpayers, and wealthy foreigners who happily settled in Spain contemplate circumspectly how, 72 hours before the end of 2022, the BOE publishes a tax with retroactive effects to January 1 and seriously consider ceasing to be tax residents in Spanish territory. Fortunately, there are elections on July 23rd.
