Much has been said and is presently being 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 that rebated a settlement of capital gain by considering not liable to tax a transfer in which there was no real increase in land value. We have already assisted many of our clients at Pérez Parras Economists & Lawyers Firm in this subject.
Since then, Spanish press has been echoing judgments of ordinary courts and higher courts of each community, which in the resolution of cases have adopted the same criterion and rebated the settlements of capital gain in which there were no real increase in land value, until its culmination with the Judgments of the Constitutional Court that declare unconstitutional the rule “only to the extent that they have not contemplated to exclude from the tax the inexpressive situations of economic capacity due to non-existence of capital gain”.
It is necessary to explain several characteristic notes that differentiate this situation from other claims.
The first one is that the tax, as such, has not been declared unconstitutional and, in a great majority of the transfers, its application continues in force as it was being done. Only those cases in which there has been no increase in land value, from the purchase of the property to the transfer of it, are not liable to capital gain.
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, since 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, a well-founded expert evidence report turns out to be essential.
Thirdly, we must warn that not all cases are entitled to return. On the one hand, capital gains that arising from an inspection procedure, limited verification or data verification for which the time of appeal have elapsed, have become firm and, except for any other material mistake or of fact, they have lost their choices. On the other hand, after four years from the settlement payment, you lose the right to income return.
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 the comments in technical forums or “small committee” of senior positions in the Spanish Tax Administration.
We will start with some rumours that point to the possibility that the Central Government will assume or financially compensate the return of capital gain records. If that situation were confirmed, it would greatly reduce the current resistance to hold the returns of the vast majority of Town Halls and other Tax Administration bodies.
On the other hand, like 26/2017 and 37/2017 judgments of the Constitutional Court that reversed the respective provincial laws that ruled the Tax on the Increase in Value of Urban Land (IIVTNU in Spain) in Gipuzkoa and Álava, they fixed the criterion of the Constitutional Court and stated and advancement of the resolution of the unconstitutionality exceptions regarding the way of applying the Consolidated Text of the Law on Local Tax Administrations at national level, and identical Laws with respect to the contested precepts, that the provincial laws have adopted to adapt to the provisions of these sentence judgements, what gives us a clue of the coming future and how to anticipate to those events.
In that sense, Provincial Decree-Law 2/2017 of March 28 tells us in advance how, presumably, will be carried out the adaptation of the Constitutional Court Judgment of May 10, 2017. We highlight from the adopted solution, the transitional provisions that establish that those who have not claimed the capital gain return before the judgment of the Constitutional Court won´t be allowed now to make the request for a refund, but those previously made will be solved according to the rules of the Decree that, in order to determine the existence of increase of value of the land, purchase and transfer values will be taken into account that should be considered for the purposes of the respective taxes that tax the ownership transfer of lands or buildings, or transfer of any regal right limiting the legal ownership of those lands, that is, the tax values of the regional government.
Although this is only an assumption, there are many arguments that pinpoint that it may end up being true and, although the mass media have advanced the meaning and text of the Judgment of the Constitutional Court, it has not been yet released in the Spanish National Printing Office (BOE), so, if you aim to claim, hurry up before it is released, but weigh well your options and don’t be swept by the advertising claims without technical solvency, and make sure that all the peculiarities of your case are in-depth studied. Therefore, if you find yourself in this situation and want us to help you, do not hesitate to consult us and we will assist you.