CAPITAL GAIN TAX: AND NOW WHAT?

What is the Capital Gain Tax?

Much has been said and is presently discussed in relation to:

the Tax on the Increase in Value of Urban Land, better known as Capital Gain.

It all started back in 2013, with the judgment of the High Court of Justice of Catalonia on 18th July. It reversed a settlement of capital gain, considering it non taxable because there was no real increase in land value.

Many clients of  Pérez Parras Economists & Lawyers Firm in Málaga and Nerja in have already consulted our office about this issue and we have assisted them and solicited the refund of this tax.

Since then, Spanish press has been echoing judgments of ordinary courts and higher courts of each community. These, to solve cases, had adopted the same criterion and reversed the settlements of capital gain when there was no actual land values.

This they did until the culmination of the Judgments of the Constitutional Court. They declared the rule unconstitutional:

“only insofar as they have not foreseen to exclude from the tax the inexpressive situations of economic capacity due to non-existence of value increases”.

It is necessary to explain several characteristics that differentiate this situation from other claims.

The first one is that the tax, as such, has not been declared unconstitutional.  In a great majority of the transmissions, its application continues in force as it had been done.

The only cases not liable to capital gain are those in which there has been no increase in land value, between the purchase of the property and its transfer.

The second one refers to cases of capital gains of housing, premises or other buildings, where the presentation of title deeds and its subsequent transfer is not sufficient.

Because the prices or values included in them correspond to the value of the property in its entirety, and not only to the land. In these cases, the contribution of a well-founded expert report is essential.

Thirdly, we must warn that not all cases are entitled to a refund. On the one hand, capital gains became final when they were derived from an inspection procedure, a limited review or data verification for which the appeal period has elapsed. Also, with the exception of some other material or factual error, they have lost their options.

On the other hand, after four years from the settlement payment, you lose the right to income refund.

It is important to request the refund of the Capital Gain tax before the new Decree is published

Rumours

But, once the main characteristics of these claims have been outlined, we speculate with

• the existing rumours and clues derived from the actions of some Town Halls,
• the comparative reading of some judicial sentences
• and from the comments in technical forums or “small committee” of senior administrators in the Spanish Tax Administration.

Let us consider some rumours on the possibility that the Central Government will assume or financially compensate the refund of capital gain files.

If this is confirmed, it will greatly reduce the current resistance of the vast majority of Town Halls and other Tax Office bodies to estimate the returns.

On the other hand, consider the judgments of the Constitutional Court 26/2017 and 37/2017.

• They annulled the respective provincial laws regulating the Tax on the Increase in Value of Urban Land (IIVTNU in Spain) Gipuzkoa and Álava.
• They fixed the criterion of the Constitutional Court.
• They advanced the resolution of the issue of unconstitutionality that referred to the way of applying the Consolidated Text of the Local Tax Law at national level and identical Laws with respect to the contested precepts.

The solution used by the provincial norms to adapt to these judgments gives us a clue as to what is coming and how to anticipate those events.

Constitutional Court Judgment of May 10, 2017:

The Foral Decree-Law 2/2017 of March 28 tells us in advance how the adaptation of the Constitutional Court Judgment of May 10, 2017 will be carried out.  We highlight, from the adopted solution, the transitional provisions that establish that:

• people who did not claim the refund before the judgment of the Constitutional Court will not be allowed to request it.

But those previously made will be resolved according to the rules of the Decree. To determine an increase in value of the land, purchase and transfer values will be taken into account. This will be for the purposes of the respective charges that

• tax the transfer of ownership of lands or buildings,
• or tax the constitution
• or the transfer of any real limited possession right to property,
• the legal ownership of those lands, i.e. the tax values of the corresponding regional government.

Although this is only an assumption, many arguments suggest that it may end up being true.  The press have advanced the meaning and text of the Judgment of the Constitutional Court; but it has not been yet released in the Spanish National Printing Office (BOE).

So, if you intend to claim, hurry up before it is released. But weigh up well your options! Do not be swept by advertising claims without technical solvency;  make sure you study in-depth all the peculiarities of your case.

Therefore, if you find yourself in this situation and want us to help you, do not hesitate to consult our office of Economists & Lawyers in Malaga and Nerja and we will be very happy to assist you.