The Constitution contests the municipal Plus Value Property tax: the municipalities will not be able to collect from this tax. The ruling will affect all those operations signed from now on or that are pending resolution in the courts.

The Constitutional Court is charged the municipal surplus value, a tax that is charged when selling a property or inheriting it and that is one of the most important sources of collection for municipalities. It considers that the objective system of 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 whether such an increase actually exists, and its amount. This directly affects the constitutional principle of economic capacity enshrined in Article 31 of the Spanish Constitution. The ruling will affect all those operations signed from now on or that are pending resolution in the courts, but will not have retroactive effects. José María Salcedo, partner of Ático Jurídico, affirms that “only the press release is known, but it is also possible that the rectification of the self-assessments of the tax, presented in the last four years, can be urged.

The sentence, of which the magistrate Ricardo Enríquez has been rapporteur, considers that articles 107.1, second paragraph, 107.2.a) and 107.4 of the consolidated text of the Law regulating local finances are unconstitutional and null (Legislative RD 2/2004 , of March 5), because it establishes an objective method for determining the taxable base of the Municipal Capital Gain Tax that 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 increase and the actual amount of that increase. In other words, the method of calculating said tax ignores whether or not there have been losses in the sale of a home, nor what the profit actually obtained has been. 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. The average amount paid by taxpayers ranges between 3,000 and 6,000 euros, although depending on the cadastral value of the transferred property, the amounts required may be much higher.

This is the final blow to this tax, José María Salcedo points out. And it is that the Constitutional Court has already declared the requirement of this tax contrary to the Magna Carta in cases in which there had been no increase in value (sentence of 5/11/2017), and in which the tax to be paid was higher than the Earned profit (10-31-2019). Now, the requirement of this tax is considered unconstitutional, because it is required objectively, without taking into account whether there has been an increase in value, or its amount.
The partner of Ático Jurídico, deduces that This ruling may be the result of the Constitutionalist’s discomfort with the legislator, who has been demanding for four and a half years to modify the tax regulations, without anything being done about it. Said petition was included for the first time in the sentence of 11-5-2017, and was reiterated in that of 31-10-2019, always, without success. The Supreme Court, for its part, has also demanded the legislator on numerous occasions to undertake the necessary legal reform.

The Ministry of Finance has assured that it will review this tax to guarantee its constitutionality and the financing of the municipalities. Waiting for the Constitutional Court to publish the sentence (predictably next week), the Ministry of Finance and Public Function finalises a legal draft that will guarantee the constitutionality of the tax, will offer legal security to taxpayers and certainty to city councils.

For its part, the Spanish Federation of Municipalities and Provinces (FEMP) has indicated that as soon as the sentence is known, an Extraordinary Governing Board of the FEMP will be convened and, from the Federation, “we will contact the Minister of Finance and we will proceed to interpret the Sentence jointly and we will ask the Government of Spain to analyse jointly the solution ”, has affirmed the president of the FEMP, Abel Caballero . In his opinion, a new rule is positive that allows the tax to be reestablished with “collection justice”.

The Constitutional Court already overturned this tax in 2017. In February 2017, the TC declared unconstitutional the regional rule that regulates the capital gains tax in Guipúzcoa , a law that is the same as the state one, with which this ruling forced to modify the national regulations as well. In this way, the Constitutional Court considered that when there is a drop in the value of the land, the tax or obligation of the taxpayer to pay this tax is not generated for the transfer of a property.
José María Salcedo, partner of Ático Jurídico , warns that, from the outset, the objective system for calculating this tax has been most questioned by taxpayers: the result to be paid is not a percentage of the profit or loss obtained with transmission (for example the sale of a house), but on the cadastral value, also taking into account the number of years that the property has been in the transferor’s estate.

For this reason, we are faced with a tax that always pays, regardless of whether the taxpayer has obtained a loss in the transmission. This is precisely the germ of the judicial controversy that has involved this tax for years, and that has generated the raising of several questions of unconstitutionality.
Taxpayers are not willing to pay a tax that, in theory, is levied on the increase in value that the transferred urban land has experienced, when said increase has been zero, and they have been forced to sell at a loss. Nor when, despite obtaining a profit in the transmission, this is very small compared to the tax that is paid, so it is confiscatory.
Now, the Constitutional Court has also declared that it is not acceptable to demand a tax objectively , and without taking into account whether there has been an increase in value, or what its amount has been.

José María Salcedo considers that “This sentence will leave without tax the transmissions that take place from now on , since the calculation system provided for in the law has been declared unconstitutional, it is impossible to demand the tax, without modifying the law.”
In addition, Ático Jurídico’s partner considers that the judgment will allow the annulment of all tax settlements that, at this moment, are pending appeal (obviously, if an appeal is filed), as well as those that were appealed, and are pending to be resolved. Finally, José María Salcedo considers that “the rectification of the self-assessments of the tax, presented in the last four years, could also be considered. All this, while waiting to be able to read the full sentence, when it is published, and thus be able to specify the effects of this devastating sentence.