On April 25, the Parliament of Catalonia approved in Barcelona the new tax on luxury goods that, although owned by companies, cannot be considered essential for their activity. The provision, which went ahead in the Parliament thanks to the votes of Junts Pel Sí, Catalunya Sí Que Es Pot and the CUP, with the opposition of PPC and Ciutadans and the abstention of the PSC, has been in force since June 30.

During its gestation in the Parliament, the provision was defended by Junts Pel Sí and the CUP as a useful tool for the fight against tax fraud and collection in pursuit of the “redistribution of wealth”.

Catalunya Sí Que Es Pot qualified its support for the tax by pointing out its ineffectiveness for the purposes advocated by its supporters, also mentioning that “there are other more appropriate instruments” for it, such as Personal Income Tax and other taxes.

Similar suspicion was what moved the PSC to abstain at the time of supporting the provision. Ciutadans and PPC, for their part, supported their votes against the accusation of the initiative of being a “toast to the sun to please the CUP” and pointing out that “in the best of cases, it will be an unproductive law”, respectively.

How Will It Influence Real Estate Tax in Barcelona?

The difference between the luxury goods tax and the luxury property tax

in that it affects those goods that, although welcomed under the classification of business goods, are not considered essential for the economic activity of the company.

The affected assets that would thus be considered non-productive assets are:

  • Real state.
  • Motor vehicles with a power of two hundred horses or more.
  • Leisure boats.
  • Aircraft
  • Works of art or antiques with a value higher than that established by the Historical Heritage Law.
  • Jewelry

Non-productive assets are understood as those that, intended for private use or own use, are granted free of charge or at a price other than the market price to partners or participants of the company, as well as to people linked to them; and, in general, goods not linked to any public service or economic activity.

They would be exempt from this denomination, being considered productive assets, those intended for the use of non-owner workers, partners or participants of the company; those intended for socio-cultural and economic services of the personnel at the service of the company; those leased at market price to owners, partners, participants or persons linked to them in the interest of an economic activity.

Although the initial project included the provision of an exempt minimum of 500,000 euros or 100,000 euros in case of absence of property, it was eliminated from the final result when Junts pel Sí argued that this “did not make sense”.

The resulting tax rate, therefore, is progressive, going from 0.25% to 2.75%.

Prospects for a similar property tax at the national level

Provisions such as the new luxury goods tax approved by the Parliament of Catalonia are unlikely within the Spanish government.

As shown by several Catalan parliamentary groups, both left and right, the initiative presents a markedly sterile character for the objectives that, publicly, is proposed: the collection, as recognized by Catalunya Sí Que Es Pot and from PPC, will be minimal.

It is, above all, an initiative subject to the developments and games of interests and concessions of Catalan politics, with no more utility than the immediate political return.

VAT on luxury goods in Spain

On the other hand, the proposal for a VAT on luxury goods in Spain,whose biggest standard-bearer is the political party Podemos – which proposes a 25% tax on the consumption of goods considered “luxury” – is an unrealistic prospect.

Such an initiative would go against European legislation,which provides for a general rate of a minimum of 15% and the possibility of a reduced rate for certain specific goods, but not that of an increased rate on certain goods.

In fact, at the introduction of VAT in Spain in 1986 there were three rates: a reduced one of 6%, a general one of 12% and an increased one of 33%, applied to cars, boats for non-commercial use, jewelry, skins “of a sumptuary nature” or pornography.

The entry into the European Union led to the abolition of the increased VAT and the increase of the general VAT to 15%.

Today, no European country maintains a tax on the consumption of goods or luxury goods. It is therefore highly unlikely that such an initiative will take place in Spain.

The anachronistic eagerness of the CUP, then, has only been able to be satisfied by Junts pel Sí through this non-productive asset tax,given the impossibility of satisfying it with provisions relating to the property and real estate tax in Barcelona or other fiscal means.