New judicial setback to municipal capital gain tax in Spain: a temporary financial chaos for local entities

Nov 5, 2021 | Lagares News

For some years now, the litigation affecting the tax on the increase in the value of urban land, better known as municipal capital gain tax, has been increased, resulting in court decisions that, in some way, broke the mould and the stagnation/automaticity of this municipal tax in favour of the rights of taxpayers.

Bear in mind that the capital gain tax levies: “the increase in value experienced by said lands and becomes evident as a result of the transfer of ownership of the lands by any title or the constitution or transmission of any real right owed, limitative of the domain on the referred lands. ”

And this, in practice, meant that pretty much any transmission operation generated a payment for the alleged gain of the taxpayer due to the increase in value experienced for their own sake.

A first milestone against this automaticity can be placed in the extension of the means of proof in favour of the taxpayer to prove the non-existence of the assumption of tax assessment, that is, the non-existence of an increase in value or the loss of value shown in the transmission. This transfers the burden of proof to the Administration, when circumstantially the taxpayer is able to highlight that there has been no capital gain, being this a consequence, among others, of Sentence 59/2017 of the Constitutional Court and Sentence of the Third Chamber of the Supreme Court 1163/2018 of July 9 and that has been characterizing the litigation (administrative and judicial) on this tax.

The latest news was made public last Tuesday, October 26th, when the Constitutional Court advanced that the operative part of a forthcoming sentence in which the plenary declared the unconstitutionality and nullity of articles 107.1 second paragraph; 107.2.a and 107.4 of the Consolidated Text of the Local Treasury Regulatory Law, that is, essential aspects for the calculation of the taxable base of the capital gain tax and, therefore, allows its settlement and claim.

This is due to the fact that: “it establishes an objective method for determining the taxable base of the Tax on the Increase in the Value of Urban Land, which determines that there has always been an increase in the value of the land during the tax period, regardless of whether there has been such an increase and the actual amount of said increase”.

Although this situation does not affect, according to the Constitutional Court itself, the situations that are already firm, a map of claims was opened for all those settlements in process which are still subject to appeal and for all the operations that arise until the legal void is filled to resolve the aforementioned precepts.

Ultimately, the municipal financing that is largely supported by the capital gain tax remains without support for the calculation of the tax base for the settlement and, additionally, the municipal entities will be immersed in the workload that will generate the regularization of the assumptions pending before the, surely, avalanche of taxpayer claims.

As advertised in the title, this is a temporary situation, since a new normative text is already being worked on that includes the necessary modifications in the tax which will allow the calculation of its tax base in accordance with the doctrine of the Constitutional Court.

In the same way, without prejudice to the fact that initially and according to the Constitutional Court, the resolution is intended to limit the effects to situations that are not final at the date of the sentence, it is not unreasonable, since the legal basis for this limitation, that the extension to the settlements of the last four years is debatable, so it is convenient to take into consideration the opportunity to present corrections or request for refunds of undue income.

Nevertheless, this assessment will be subject to evaluation when the full text of the sentence is made public and a more in-depth analysis of the modified capital gain tax can be carried out.


Ana Montesdeoca
Lawyer. Litigation Department