Publication of tax return for tax on large fortunes

Approval of form 718

The Official Gazette of the Spanish State has published Order HFP/587/2023, of June 9, approving Form 718 on the temporary solidarity tax on large fortunes (“LFT”). Note that LFT is classified as a tax complementary to wealth tax (“WT”), the difference being that it is levied on individuals’ net wealth in excess of €3,000,000.

The form must be filed electronically between July 1 and July 31 of the year following the date on which the tax is accrued. Therefore, as the first settlement of LFT will correspond to the 2022 fiscal year, the tax return of LFT accruing on December 31, 2022, must be filed between July 1 and July 31, 2023.

The publication in the Official Gazette of the Spanish State of Form 718 confirms Cuatrecasas’s interpretation of two issues that raised certain doubts:

• First, taxpayers that apply the impatriate regime (regulated under article 93 of Act 35/2006, on Personal Income Tax, or “PIT”) will be subject to wealth tax exclusively for assets and rights that are located, can be exercised or must be fulfilled in Spain (as specified in box 53 of the form).
  
  Moreover, this is the criterion established by the Directorate-General for Taxation in resolutions V0420-23 and V0424-23.

• Second, to cap the sum of the total liability for PIT, WT and LFT, a theoretical WT due must be taken into account (box 152 of the form), rather than the WT that has actually been paid (box 205 of the form).
  
  This aspect will have a significant effect on taxpayers of Madrid, Andalusia and Galicia, who benefit from tax rebates on WT, as those rebates would be disregarded for the purposes of capping the LFT due.

LFT as a controversial tax

The approval of the LFT under Act 38/2022, of December 27, has proven controversial owing to the parliamentary processing of the act and the fact that it the tax has entered into force for the 2022 fiscal year (with the accrual date falling on December 31, 2022, barely two days after the act entered into force).

Also, it is worth noting that the Spanish Constitutional Court has admitted the appeal on the grounds of unconstitutionality filed by the Governing Council of the Regional Government of Andalusia against Act 38/2022, which, as we have mentioned, introduced the LFT. However, the request for stay of execution has been rejected. This means that the Constitutional Court must analyze the constitutionality of the new tax but, in the meantime, taxpayers affected by the approved regulations will be obliged to pay LFT. Following that appeal, on similar grounds of unconstitutionality, others have been filed against this act by the Governing Board of the Autonomous Region of Madrid, the Madrid Assembly, the Government of Galicia and the Region of Murcia.

The tax is temporary and, in principle, will only be applied for fiscal years 2022 and 2023. However, having been approved, the Spanish government will have to consider the results at the end of this period and decide whether to keep imposing it or to eliminate it. For more information and a more detailed explanation of the LFT, please see our Legal Flash | New tax measures approved in Spain for 2022 and 2023.

Finally, we would like to note that the Economic Agreement with the Chartered Community of Navarre and the Economic Agreement with the Basque Country have been adapted to include LFT among the taxes that may levied in those regions. However, Navarre amended the wealth tax scale applicable to fiscal years 2022 and 2023 and included a final tranche set at a maximum rate of 3.5%. This means that wealth tax in the region is aligned with the rate applicable to LFT. In the Basque Country, the LFT will not be due on the 2022 fiscal year and we must wait for the measures that could be adopted for the 2023 fiscal year.