Landmark judgment from Constitutional Court declaring unconstitutional and therefore null and void the system for calculating the tax base for municipal capital gains tax

Landmark judgment from Constitutional Court declaring unconstitutional and therefore null and void the system for calculating the tax base for municipal capital gains tax

Landmark judgment from Constitutional Court declaring unconstitutional and therefore null and void the system for calculating the tax base for municipal capital gains tax (In Spanish “Impuesto sobre el Incremento de Valor de Terrenos de Naturaleza Urbana or “IIVTNU” by its acronym).

When a person sells, inherits or is gifted real estate in Spain, it is assumed that the value of the land rose during the time it was owned and so the taxpayer must pay a tax on the ‘capital gain’. The articles on the capital gains tax law declared null and void assumed there was always a rise in land value when it was transferred, regardless of whether such a rise actually took place according to the real transaction conditions.

In a judgment published Wednesday, 3rd November 2021, the Constitutional Court found the tax to be unfairly balanced towards local councils, for whom there is always a capital gain regardless of market status. This is not the first time the Constitutional Court has declared this tax unconstitutional. Back in 2017, the Court said it was unconstitutional when there is no capital gain, but the tax regulations remained unchanged as the judgment did not impact tax calculation rules.

This week’s judgment declares the unconstitutionality of articles 107.1-second paragraph, 107.2.a) and 107.4 of the consolidated Law Governing Local Tax Offices (in Spanish “Texto Refundido de la Ley Reguladora de las Haciendas Locales”). These articles governed the mechanism to determine the tax base, meaning that – since it has been declared null and void – it is now impossible to assess the tax until it is modified to meet the provisions contained in the Spanish Constitution.

Unfortunately, the Court’s resolution declares the intangibility of the judgment, meaning that capital gains taxes deemed final on the date of issuance of the judgment cannot be reassessed in line with the new criteria. It will therefore be very difficult to apply the Court’s resolution retroactively to claim the refund of amounts unduly levied.

However, since the filing and settlement procedure varies from one municipality to the other, it is worth assessing whether the judgment can be applied to each specific case, especially in situations where the tax was self-assessed by the taxpayer.

 

If you would like further information, please do not hesitate to contact our office by calling 91.205.44.25 or by sending an email to contacto@selierabogados.com

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