Capital gains to trial

The so-called "municipal capital gains" is questionable.

The Administrative Court No. 3 in San Sebastián has raised a question of unconstitutionality to the Local Finance Law, considering that it establishes an unfair calculation method for the increase in value of Urban Land is unfair, as the calculation is based on the assessed value at the moment of sale, revalorizing it depending on the years which have passed since the previous acquisition has been signed, and not on other values, such as the difference between the value of acquisition and transmission, which reflects the actual gain or loss recorded by the taxpayer and determines the obligation to pay tax or not, in case of gain or loss. As it is now regulated, this tax must be paid even if the seller does not inexorably gets any benefit from the sale. This, in the opinion of the court in San Sebastián, limits the right of defense enshrined in Article 24 of the Spanish Constitution, inasmuch as it does not admit evidence of the contrary. However, there are already judgments of courts in Madrid and Barcelona who believe that the tax is not applicable to cases in which the seller fails to make a profit.

Moreover, this court considers that it would also be contrary to the principle of economic capability of Article 34 of the Constitution, which determines a tax system for the support of public expenditure based on the principles of equality and progressive taxation, which in no case may have confiscatory scope. However, the current tax regulation ignores these principles and any vendor, regardless of his or her economic capacity, must pay the municipal capital gains tax. Its calculation does not take into account any progressive scale, as it is the case with other taxes.

This tribute has provoked much controversy in these times of crisis and now the Constitutional Court must decide whether the Tax on the Increase in Value of Urban Land is contrary to the Constitution, to declare so, municipalities will face an avalanche of claims which will consequently lead to devolutions oof millions of euros.

We will have to wait for the decision of the court which will certainly be an important decision. Meanwhile, we will keep you informed of the progress of the process.

Source: Cinco Días (Monday, 25/05/2015)