The Constitutional Court declares null the calculation of the municipal capital gain

The Constitutional Court declares null and unconstitutional the objective method for determining the tax base of the Increase in the Value of Urban Land, known as the municipal capital gain. Until now, the courts had rejected the payment when a property was sold at a loss.

The municipal capital gain, the tax that citizens pay to municipalities for selling or transmitting a property or farm, has always been in the eye of the hurricane of justice. The Supreme Court, and the Constitutional Court itself, had already limited its collection when the sale operation entailed losses for the former owner or ate up almost all the profits. The Constitutional Court today gave the coup de grace.

The sentence, of which the magistrate has been rapporteur Ricardo Enriquez, consider that they are unconstitutional and null part of the Local haciendas regulating law (Articles 107.1, second paragraph, 107.2.a and 107.4) which refers to the calculation of the tax base. The court says that the method used always establishes a value of the land during the period of the imposition, regardless of whether there has been such an increase and the actual amount of that increase. In practice it assumed that even if the property was sold at a loss, the taxpayer had to pay. After the decision, the city council must stop applying this tax. Now it is up to the Government to adapt the norm to the decision of the Constitutional Court or to suppress the references to municipal capital gains from the Local Treasury Law.

There will be no retroactive effects

In addition, the Constitutional Court declares the intangibility of the firm situations existing before the date of approval of the sentence, which implies that there will be no retroactivity for the previous liquidations of this tax.

This tax is levied on the change in value experienced by urban land (it does not have to be a building) from the moment it is acquired until it is sold or transmitted (in the case of inheritances).

The tribute was delegated to the municipal administrations, so it was the municipalities in charge of managing it. Therefore, each consistory could apply this tax under specific premises, although yes, always following general guidelines.

The judgment has the concurring individual vote of President Juan José González Rivas and the dissenting votes of Judge Cándido Conde-Pumpido and Judge María Luisa Balaguer.

In the next few days the sentence and the individual votes will be notified along with a more extensive press release.