The Spanish municipal added value tax discussion
Due to the economic crisis, there have been numerous transfers of real estate that have generated losses in recent years. However, the City Councils have continued to require the payment of the tax on the increase of the value of the land (in Spanish the “Plusvalía Municipal”) while people are losing money in fact. This situation was the subject of numerous complaints that have motivated the Constitutional Court Decision 59/2017.
What is the current situation?
The last judgement of the Constitutional Court 59/2017 of 11 May declared void certain provisions of the Local Finance Law concerning the Tax Base, in situations where there has been no increase in value of land between the date of purchase and the date of sale, pointing out, in addition, that it must be the legislator who must modify or adapt the Law so that we don’t have taxation while it shouldn’t happen.
From this moment, in these cases, we understand that the corresponding Town Hall must be notified that the transmission operations carried out have not generated an increase in the value of the land. Therefore, there is no taxable event, no liquidation of any quota proceeding.
For their part, the City Councils must suspend the liquidations of the transmissions until the appropriate regulations are in place.
Different postures of the courts regarding this judgment of the Constitutional Court
Currently, the Judgment of the Constitutional Court is being interpreted differently by the different judicial bodies, highlighting two positions:
1.- The Constitutional Court has created a “legal vacuum” in the tax system and, as a consequence, the tax cannot be settled in any case (whether there is a benefit in the operation or not). The Supreme Court of Madrid, Catalonia, Castilla y León and Galicia have pronounced judgements in this direction.
2.- The tax must be settled when there is no proof of loss in the transmission operation. The TSJ of Valencia and Aragon maintain that the tax can be demanded in the absence of proof of loss.
The Supreme Court should decide
Given this situation, an Instance of the City of Zaragoza has just filled an appeal to the Supreme Court which must decide, after the ruling of the Constitutional Court, to ensure legal security, equality in the application of the law and respect of the reservation of law, if the Courts and tribunals must cancel the tax settlements without entering into an assessment if, in each case, there has been an increase in value or not.
So, finally, the Supreme Court will have to decide on one of the two positions.
What should we do in the meantime?
To all people involved in this situation, we advise:
1. In case it can be proven that there has been no gain in the operation, we have already commented that, given that the aforementioned Judgment also declares null and void Article 110.4 of the Law, the corresponding City Council must be notified that it has been carried out the transfer operation, which has not generated an increase in the value of the land and, therefore, there is no taxable event, no liquidation of any quota proceeding.
2. Should the operation of transmission origin show a gain, our advice is to pay the tax to the appropriate City Hall and immediately proceed to the challenge of that income tax return and apply undue waiting for the Supreme Court to decide the case of Cassation and pronounce definitively on the accrual or not of the Goodwill in case of gain in the operation.
In case that the tax is not settled by self-assessment, but the settlement is made by the City Council or Deputation at the request of the interested party, the liquidation practised, must be appealed within a maximum period of 1 month. In this way, we will avoid that it is firm.
3. With regard to the self-assessment of the last four years, we advise to challenge them and request the refund of undue income in any case (whether or not the transaction to transfer the property has been generated) pending the Supreme Court’s resolution of the appeal filed by the City of Zaragoza.
As of today, March 2018, the Municipal Capital Gains settled from March 2014 onwards are in the contested period. Therefore, if during this period, this tax has been settled (by the self-assessment system) for any transfer of real estate, (Sale, donation, inheritance, the contribution of assets to a company, Swap, expropriations ….) we advise you that you challenge to the effect that, if the Constitutional Court decides that the Constitutional Court has created a “loophole” in the tax and therefore can not pay the tax in any case (whether or not you make a profit on the operation), we access the refund of the Tax paid improperly.
This article is written by one of our independent partners in Spain, Juan, who is one of our Legal partners in Catalunya. Check his profile in our team section.