Cadastral Reference Value Upheld by Constitutional Court

The Constitutional Court has recently upheld the use of the cadastral reference value as the taxable base for the assessment of certain property taxes linked to the transfer of real estate.

The ruling, issued unanimously, dispels doubts about the constitutionality of this valuation system introduced in 2022, which affects, among others, the Tax on Property Transfers and Documented Legal Acts, as well as the Inheritance and Gift Tax.

Origin of the controversy: the question of unconstitutionality

The decision stems from the question of unconstitutionality raised by the Administrative Litigation Chamber of the High Court of Justice of Andalusia, Ceuta and Melilla, based in Málaga. The judicial body questioned whether the regulations governing the reference value could infringe the principle of economic capacity set out in Article 31.1 of the Spanish Constitution.

In particular, doubts were raised regarding the legitimacy of an objective and general valuation system, based on statistical estimates prepared by the Directorate-General for the Cadastre, on the grounds that the legislator had renounced the individualisation of the real value of each property in favour of universal and abstract formulas that might not adequately reflect the specific circumstances of each transaction.

The cadastral reference value and its tax-related function

The cadastral reference value, in force since January 2022, is established as the parameter used by the tax authorities to determine the taxable base in the transfer of real estate, regardless of the price declared in the transaction.

This system is based on purchase and sale prices formalised before a notary and seeks to reflect the market value of properties at any given time, without the need for individualised checks or expert inspections of the property. Its introduction responded, among other objectives, to the need to reduce litigation, strengthen legal certainty, and combat tax fraud practices arising from systematic undervaluation.

However, in practice, its application has generated controversy, particularly in those cases where the reference value exceeds the actual acquisition or transfer price, thereby increasing the taxpayer’s tax burden.

The Constitutional Court’s doctrine

The Full Bench of the Constitutional Court considers that the reference value constitutes an indicative valuation method that allows for an adequate measurement of the taxed wealth and maintains a reasonable connection between the taxable event and the taxable base of the tax.

According to the High Court, this system cannot be described as arbitrary, since it is based on an objective and reasonable justification, including administrative simplification, the reduction of conflicts between taxpayers and regional tax authorities, the improvement of legal certainty, and the prevention of tax fraud.

Likewise, the Court emphasises that this is not a closed or inaccessible system for taxpayers. In cases where the taxpayer considers that the reference value deviates from the real or market value of the property, the regulations provide for the possibility of proving a different value, without evidentiary limitations, thus allowing for the correction of the taxable base when specific circumstances justify it.

Practical scope of the ruling

With this decision, the Constitutional Court closes the avenue for abstract challenges to the reference value on the grounds of infringement of the principle of economic capacity, thereby consolidating its use as a general valuation criterion in property taxes.

However, the ruling confirms that it is still possible to dispute the applied value on a case-by-case basis, which keeps open the taxpayer’s right of defence where objective elements exist that demonstrate a significant deviation from the real value of the property.

Conclusion

The Constitutional Court’s ruling reinforces the legal certainty of the current real estate valuation system, while at the same time recalling the importance of analysing each transaction on an individual basis.

In a context of high regulatory complexity and increasing tax scrutiny, it is essential to have appropriate advice in order to assess the tax impact of real estate transfers and, where appropriate, to implement the legally established correction mechanisms.