the new local gains tax

On Oct. 26, the Spanish Constitutional Court published the Informative Note 99 / 2021 which declared the unconstitutionality and nullity of the articles of the Law regulating Local Treasury that established an objective method to determine the taxable basis for the Tax on the Increase of Value of Real estate (the so – called, Plusvalía municipal” that is paid to the local town halls) as it considered that there was always an increase in value, irrespective of whether or not such increase existed and for which amount.

The Constitutional Court Sentence no. 182 / 2021 was finally published on November 25, declaring the unconstitutionally and nullity of the mentioned regulations, given the absence of adequacy of the tax to the principle of economic capacity as a measure of the taxable basis, ignoring the real market value of the real estate.

✔ In relation to the scope of the nullity declared by the Court Sentence, it establishes that transactions that, on the date of dictating it, have been definitively settled with a sentence having the force of res judicata or with a firm administrative resolution cannot be reviewed based on the contents of the Sentence.

✔ In addition to this, the effects of the Sentence are extremely limited, and do not apply to self-assessments whose amendment has not been applied for on the date the Sentence has been dictated. It appears that it does not permit to all taxpayers that have paid the tax declared unconstitutional applying for the refund of unduly paid taxes. Hence, taxpayers that paid this tax without filing any claim or amendment shall not benefit from this Court Sentence.

✔ Following Spanish Constitution, Constitutional Court Sentences have value as from the day after their publication, though this Sentence, in particular, establishes that its effects are from the date on which it was dictated.

✔ On Nov. 08, the Spanish Government approved Royal Decree 26 / 2021 that adapted the Law regulating Local Treasury to the recent Constitutional Court Sentence. It must be noted, however, that the Sentence was published after Nov. 08, on Nov. 25th and taxpayers only knew of their existence through the Informative Notes issued by the Constitutional Court, the first one of them on Oct. 26.

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✔ Such Royal Decree came into force on Nov. 10 this year. This implied that there was a legal vacuum for the transactions subject to the “Plusvalía Municipal” from Oct. 26, the date on which the Constitutional Court communicated the contents of its Sentence and Nov. 10, given that the new regulations do not foresee their retroactive application.

✔ All in all, we deem it worth reviewing the cases when this tax has been paid within the statute of limitations period and analysing the possible outcome should a refund application for the undue payment of this tax be filed.

Royal Decree 26 / 2021 has passed new regulations in relation to the local tax on the increase of value of urban land (the so –called, Local gains tax – “Plusvalía Municipal”) with the aim of complying with the mandate of the recent Constitutional Court Sentence 182 / 2021 of Oct. 26.

As a consequence of it, the long lasting controversy in relation to this tax has ended on the basis that keeping the present objective and mandatory computation scheme to determine the taxable base did not take into account the reality of the real estate market and the economic crisis and was, therefore, apart from the taxpayer’s taxable economic capacity thus infringing the economic capacity as a taxable criterion (article 31.1. of Spanish Constitutional Law).

At this point, let us go through on how are we going to liquidate this local tax, going forward.

✔ With the purpose of complying with the Constitutional Court Sentence 59 / 2017 mandate of not taxing situations where there is no increase of land value, a new non subjection scenario is introduced for the cases when it is proven, at the taxpayer’s request, that there has been no such increase of value.

✔ With the aim of attending the express mandate of the Constitutional Court Sentences 126 / 2019 and 182 / 2021:
i. The determination of the taxable base is improved so that it always reflects the real estate market value: (i) local town halls have the possibility of decreasing the land’s cadastral value; and, (ii) the former annual percentages that were applied on the land value to determine the taxable base are substituted by maximum percentages based on the number of years since land was acquired, that shall be annually updated taking into account the prices’ evolution of real estate sales carried out.
ii. Taxpayers can adapt the final tax on the real increase of land value obtained, to avoid any taxation that does not take into account the taxpayer’s economic capacity.

The Spanish tax authorities focus on Transfer pricing and tax consolidation schemes

✔ Hence, to calculate the tax quote, taxpayers may elect between:
i. A new objective computation that shall be adapted to the real estate market evolution and that will be based on the cadastral value at the moment of its transfer, multiplied by the percentages approved by local Town halls.
ii. A new computation based on the real gain for the difference between the purchase and sale value, if the taxpayer can prove that the real gain is lower than the objective gain calculated based on the cadastral value.

✔ It must be noted that these new regulations do not have retroactive effects but enter into force on November the 10th. There is a sort of a regulatory gap during the period since the Constitutional Court Sentence was known up to the 10th of November 2021.

✔ Local town halls that apply this local tax on gains will have to modify their local rules and adapt them to the new regulations within a 6 months term. Up until this is completed, the maximum percentages referred to above to determine the taxable base shall apply.

✔ Perhaps, in the future, one may question whether keeping this local tax makes any sense, when taxpayers are already taxed in the Personal income tax or Corporate income tax on the real gain obtained.

Publicado el 12-2021 por PBS