On March 26, 2019, the Official State Gazette published Constitutional Court ruling 28/2019 (see here), in which it was judged that the tax is constitutional. Accordingly, the regulation is in force, without prejudice to the fact that, for effective application, the Catalonian Government is still to issue the enabling regulations.

CONSTITUTIONALITY OF THE TAX ON NON-PRODUCTIVE ASSETS:

The Ruling confirms that:

  • There is no double taxation with respect to Wealth Tax for the following reasons:

a.Taxpayers: Wealth tax falls on individuals, and the Tax on Non-productive Assets on Legal Entities. Potential overlap in the case of entities without legal personality does not occur either, given that for Wealth Tax, individuals are taxed and for the Tax on Non-productive Assets of Legal Entities, the entity without legal personality is.

b.Purpose: Wealth Tax taxes the ownership of all types of goods, while the Tax on Non-productive Assets of Legal Entities has a non-taxation purpose: stimulating the use of company assets, part of the economic policy objectives set out in the Constitution.

  • There is no double taxation for Real Estate Tax (IBI) due to the following differences:

a.Purpose: For the Tax on Non-productive Assets of Legal Entities it is the lack of use of real estate, while in the case of Real Estate Tax, the payment capacity proves ownership.

b.The Tax on Non-productive Assets of Legal Entities is a personal tax while Real Estate Tax is a turnover tax.

c.The Tax on Non-productive Assets of Legal Entities is calculated by means of a progressive tax rate applicable to all the non-productive assets of a legal entity, while Real Estate Tax has a proportional tax rate applicable to each property individually.

  • There is no double taxation for Vehicle Tax: the purpose of both taxes is different and the calculation does not match either.
  • The Tax on Non-productive Assets of Legal Entities does not violate art. 9 of the Organic Law on Funding the Autonomous Communities: The Tax on Non-productive Assets of Legal Entities does not have extraterritorial effects: it only falls on taxpayers with tax domicile in Catalonia.

TAX ON NON-PRODUCTIVE ASSETS:

Having stated the compatibility of this new tax with constitutional regulations, it is worth recalling the main characteristics of the Tax on Non-productive Assets of Legal Entities:

  • Taxpayer: Legal entities with tax domicile in Catalonia.
  • Taxable event: The taxpayer's holding, on the date on which the tax accrues (January 1 each year), of the following assets, provided that they are not productive and located in Catalonia.

a.Real Estate. b.Motor vehicles with 200 horsepower or more. c.Pleasure craft. d.Aircraft. e.Works of art and antiques with a value above that set by the Historic Heritage Act. f.Jewelry.

These goods will be considered unproductive and, therefore, will be subject to tax, in any of the following cases:

  • Given free of charge to the members of the legal entity that owns them or to other entities linked to them and are intended for their own or private use.
  • Transferred for a price to the members of the legal entity or to other entities linked to them and intended for their own or private use, unless they pay a market price for their use.
  • They are not affected by any economic activity. Only in these cases is the application of the "assets-holding company" rule provided, which allows for assets not to be considered as unproductive if their value does not exceed the amount of the profits made by the entity in performance of economic activities in the same year or in the previous 10 years.
  • Tax base: comprising the sum of the values corresponding to all non-productive assets (without deducting indirect charges and levies that lower their value).
  • Gross tax: calculated progressively according to the following rate:
Net base up to (euros) Gross tax (euros) Remainder net base up to (euros) Applicable rate (%)
0.00 0.00 167,129.45 0.210
167,129.45 350.97 167,129.43 0.315
334,252.88 877.41 334,246.87 0.525
668,499.75 2,632.21 668,500.00 0.945
1,336,999.75 8,949.54 1,336,999.26 1.365
2,673,999.01 27,199.58 2,673,999.02 1.785
5,347,998.03 74,930.46  5,347,998.03 2,205
10,696,996,06 192,83.82 Upward 2.750

Finally, it should be remembered that the effective implementation of this tax is still subject to issuance of enabling regulations.