The Constitutional Court annuls the municipal capital gain

The Tax on the Increase in the Value of Urban Land has been the subject of great controversy in recent years in a jurisdictional way.

Recall that already in 2017, the Constitutional Court ruled that the aforementioned tax went against the principle of economic capacity promulgated in article 31 of the Constitution in those cases in which it was taxed by this tax even when the sale of the property had been made at a loss.

Following in the wake of these judgments, in 2019, the same body declared the payment of this tax null in those cases in which the amount to be paid exceeded the profit obtained by the taxpayer in the transfer of the property.

And finally, this past Tuesday, October 26, 2021, the same Court took another step by declaring unconstitutional the method to determine the taxable base of the tax that appears in article 107 of the consolidated text of the Law regulating local finances.

In summary, the ruling declares said calculation method unconstitutional because it is understood that it establishes an objective method for calculating the taxable base of the tax in which there is always an increase in the value of the land during the period of holding it, regardless of whether it there has been such an increase and the actual amount thereof.

For its part, and after hearing the sentence, the Ministry of Finance and Public Function has communicated that it is finalizing a legal draft “that will guarantee the constitutionality of the tax, offer legal security to taxpayers and certainty to municipalities.” However, this poses a severe problem for those taxpayers who proceed these days to the sale of the property. However, this poses a severe problem for those taxpayers who sell a property these days. Until it is communicated what this new method should be, they find that they cannot settle the tribute with legal certainty before the local estates.

It will not have retroactive effects on those resolutions already declared final.

On the other hand, the same court ruling declares the intangibility of the firm situations existing before the date of approval of the sentence. In practice, this means that it will not have retroactive effects on those resolutions already declared final. Everything also seems to indicate that the verdict will provide that those settlements that were not contested before the date of the ruling, that is, October 26, 2021, may not be the object of a claim.

In any case, in the absence of an in-depth analysis of the Court’s judgment, once it is published, it must be subject to analysis to determine whether or not it is possible to challenge before the relevant bodies the statements that have not yet been prescribed and that have not acquired firmness.

Although it is true that such a claim, if finally possible, will entail management costs for taxpayers, this does not preclude that in those cases in which the capital gain has represented a high amount, it will proceed to raise the same.

In any case, it will be necessary to evaluate the viability of said claim on a case-by-case basis. For this, it is essential to have the advice of professional experts in the field.