The Temporary Solidarity Tax on Large Fortunes (ITSGF), created by Law 38/2022 of 27 December, was subject to an unconstitutionality appeal filed by the autonomous communities of Madrid and Galicia before the Constitutional Court during the first half of 2023. The grounds of the appeal focused on the violation of regional financial autonomy and the potential double taxation with the Wealth Tax.
The ITSGF levies a progressive tax on the net assets of individuals exceeding three million euros, structured in three bands: 1.7% for assets between €3 million and €5 million; 2.1% between €5 million and €10 million; and 3.5% for assets above €10 million. Unlike the Wealth Tax — which is ceded to Spain’s autonomous communities with full regulatory powers, including the ability to establish reliefs — the ITSGF is a direct national tax that does not admit any regional reduction.
Grounds of the Appeal
The appealing regions argued that the new national tax emptied their power to regulate the Wealth Tax through regional reliefs of meaningful content. Madrid had established a 100% relief on Wealth Tax through Article 8 of Regional Legislative Decree 1/2010 of the Community of Madrid. As a result, its residents effectively became liable for the ITSGF in full, since the ITSGF mechanism allows only the actual amount paid under the regional Wealth Tax to be deducted — and for Madrid residents, that amount was zero.
The mechanism works as follows: the ITSGF permits a deduction of the amount effectively paid under the Wealth Tax, making the new levy a fiscal floor. For residents in Madrid, Andalusia, Galicia or Extremadura — regions with 100% Wealth Tax reliefs who therefore paid nothing under that tax — the full ITSGF becomes payable, completely neutralising regional fiscal policy.
In addition, the appellants argued that the tax could constitute double taxation on the same assets already subject to Wealth Tax, violating the non-confiscation principle enshrined in Article 31.1 of the Spanish Constitution. The accumulation of levies on the same taxable event — the ownership of assets — without effective full deduction when the regional quota is zero was one of the central arguments of the challenge.
The appellants also invoked the principle of institutional loyalty and the regional financing system, arguing that the State cannot create its own taxes on taxable events already ceded to the autonomous communities without explicit authorisation respecting the framework established by the Organic Law 8/1980 on the Financing of the Autonomous Communities (LOFCA).
Government’s Position
The State Legal Service defended the constitutionality of the tax on the basis of the State’s power to establish its own taxes under Article 133.1 of the Constitution and the constitutional mandate to harmonise the tax system. The Government argued that the Wealth Tax and the ITSGF do not strictly share the same taxable event because their active subjects are different — the autonomous communities and the State respectively — and that the deduction of the Wealth Tax quota eliminates effective double taxation in those territories where the Wealth Tax is actually paid.
The declared temporary nature of the tax — Law 38/2022 explicitly describes it as “temporary” in its title — was also cited as a mitigating factor limiting the impact on regional financial autonomy and as a distinguishing feature from a structural reform of the tax system.
Impact on Planning
While the Court deliberates, affected taxpayers must file and pay the tax on time to avoid surcharges — set at 5% for delays of up to three months, 10% for up to six months, 15% for up to twelve months, and 20% plus late-payment interest beyond that — but may simultaneously file rectification requests or administrative appeals citing the possible unconstitutionality.
This dual procedural strategy is particularly important given that the right to a refund of undue payments prescribes after four years. If the Constitutional Court declares the tax unconstitutional, only taxpayers who have interrupted the limitation period by filing a formal challenge will be able to recover the amounts paid.
Reviewing asset structure can also reduce the ITSGF taxable base. Shareholdings in family businesses that meet the requirements of Article 4.Eight of the Wealth Tax Act are exempt for ITSGF purposes as well. Assets such as correctly structured unit-linked life insurance policies, assets used in business activities, or certain pension instruments may, under specific conditions, fall outside the taxable base or benefit from reductions.
Current Procedural Status
The Constitutional Court admitted the appeal filed by the Community of Madrid in 2023. Proceedings before the Court do not automatically suspend the obligation to pay the tax, meaning that the 2022 and 2023 tax years — self-assessed in July 2023 and July 2024 respectively using Form 718 — must be settled regardless of the outcome of the challenge. When the Court’s ruling is issued, it will have general effects on all taxpayers, but the recovery of individual amounts will require having preserved the right to a refund through a timely formal challenge.
At BMC we closely monitor the evolution of this litigation and advise clients on the best procedural strategy, including timely filing of Form 718 and the simultaneous submission of challenges that preserve the right to a refund in the event of a favourable ruling by the Constitutional Court. See our wealth tax planning services.
