The Constitutional Court declared Plusvalía Municipal tax unconstitutional in the case of transmissions in losses.
On July 10, Law 11/2021 was published in the BOE, which aimed to implement prevention and anti-fraud measures. This law came to modify some 19 existing laws among which are: General Tax Law and laws related to the main taxes paid in Spain such as Personal Income Tax, income of non-residents, corporation tax, VAT tax, among many others. However, and despite what was thought, the law of the surplus value of the municipalities was not modified.
And why was it important to also modify the capital gains tax?
Because on several occasions the Constitutional Court asked for its modification and adaptation to the current law as proclaimed in judgment 59/2021 of May of this year. The Constitutional Court declared this tax unconstitutional in the case of transmissions in losses.
According to that judgment, the Court considers “the way to determine the existence or not of an increase susceptible to be subject to taxation is something that only corresponds to the legislator, in his freedom of normative configuration, from the publication of this Judgment, carrying out the pertinent modifications or adaptations in the legal regime of the tax that allow to arbitrate the way not to subject to taxation the situations of non-existence of increase of value of the land of urban nature. ”
Already in other judgments the Constitutional Court gave similar opinions.
Constitutional Court annuls the Municipal Plusvalía
On October 26 of this year, the Constitutional Court cancels the municipal surplus value momentarily. The same Court that had been demanding for some time the modification of said law to adapt to the tax law and the previous judgments issued by that body, took the initiative and decided to annul the capital gains tax. Already in February 2017, the Constitutional Court declared this norm unconstitutional in the municipality of Guipúzcoa.
But what is Capital gains tax?
Capital gains tax is paid when you sell your property in Spain and pay at your local town hall, even if a percentage of that gain is your primary residence. The tax is paid on a value that the municipality applies to the property at the time of purchase and at the time of sale. When and who pays for it?
As we mentioned, the municipal capital gains tax comes into play when the sale of a real estate property, a donation or an inheritance occurs, mainly. It is a tax that must be paid to the town hall where the property is located.
There are two situations: in the case of a sale, the seller has to pay the tax, since he is considered the winning party of the transaction.
In the case of donations or inheritances, who has to pay it, is the person who receives said goods.
There is a period of about 30 working days to make the payments corresponding to this transaction in the town hall of the corresponding locality.
Why has the municipal surplus value been annulled?
In cause is the form of calculation of the tax. The Constitutional Court considers that the system for calculating the tax is unconstitutional because it determines that there is always an increase in value when a piece of land is transmitted regardless of the multiple casuistries to calculate said increase. This valuation and constant increase in the price of land directly violates the constitutional principle of economic capacity contained in article 31 of the same Spanish Constitution.
Who does it affect? Who can claim the surplus value?
This judgment will affect all those operations signed from the moment of the judgment onwards or that are pending resolution by a court.
According to the recent ruling of the Spanish Constitutional Court that we mentioned, this considers: “the way in which the City Council calculates the increase in value is illegal“. The value applied by the municipality does not correspond, for example, to the price you paid, the cadastral value or the deed or even the sale price.
The judgment considers that articles 107.1 second paragraph, 107.2.a) and 107.4. the calculation is unconstitutional and null and void because it establishes a method that determines that there has always been an increase in the value of the land during the period between the purchase and sale, regardless of whether this increase actually exists and the actual amount of that increase.
What’s going on right now?
So, for the moment, there will be no more capital gains tax if you sell your property in Spain, this tax is temporarily suspended.
Therefore, the ruling will leave the municipalities helpless without being able to claim such taxes since, the law considers the current calculation system unconstitutional, with which, it is impossible to demand from the taxpayer the relevant tax for said transaction.
What will happen?
The most likely and expected is that municipalities will propose a much fairer and more equitable way to calculate the increase in value. Thus obliging the legislator to remodel the previous law to adapt to the requirements of the judgment mentioned in this article.
In addition, the priority of modifying the law is maximum, since, the capital gains tax is the second largest source of income for any municipality according to the Treasury. And currently there is a legal vacuum of the situation for both taxpayers and municipalities.