In judgment 182/2021, of 26th October, the Spanish Constitutional Court has declared null and void the Tax on the Increase in Value of Urban Land (IIVTNU – Incremento de Valor de los Terrenos de Naturaleza Urbana), commonly known as “plusvalía municipal”, by declaring the articles 107.1 second paragraph, 107.2 a) and 107.4 of the Consolidated Text of the Law regulating Local Treasuries (TRLHL) to be unconstitutional. The court understands that the objective method for determining the tax base analysed is unconstitutional because it establishes an increase in the value of the land in any case, regardless of whether this increase has occurred or the amount thereof, which runs counter to the principle of economic capacity as a criterion for taxation (article 31.1 of the Spanish Constitution).
While the Constitutional Court had previously ruled on the constitutionality of the IIVTNU (judgments of 16th February 2017, 1st March 2017 and 31st October 2019), in this last ruling the court has examined the alignment of the tax to the principle of economic capacity as a measure of the tax base, stating that, for the estimation method of the tax base to be constitutionally legitimate it must “tax average or presumed (potential) increases; that is, those increases that foreseeably or presumably occur over time on all land of an urban nature”. Thus, the court adds:
“Hence, taking into account, that the economic reality has destroyed the aforementioned presumption of annual revaluation of land of an urban nature […]
“Therefore, the maintenance of the current objective and mandatory system for determining the taxable base […]violates the principle of economic capacity as a criterion for taxation (art. 31.1 CE)”.
In addition, the court stated that those tax obligations that, at the date of the ruling, have been definitively resolved by a judgment with the force of res judicata or by a final administrative resolution, will not be subject to review. Accordingly, the court determined that any provisional settlements that have not been challenged, as well as self-assessments for which rectification has not been requested will also be deemed as consolidated situations.
Hence, those taxpayers who have not already filed an appeal, will not be able to do so now, and therefore, will not recover what has already been paid.
Therefore, in response to this situation, on Monday, November 8th, the Government approved the Royal Decree-Law 26/2021, which amends the Law Regulating Local Treasuries and adapts the tax to the jurisprudence of the Constitutional Court. This regulation incorporates two important new developments.
Firstly, the method for determining the taxable base is modified, establishing a double system that allows the taxpayer to choose between the objective assessment system (article 107. 1, 2, 3 and 4) and the direct assessment system (article 107. 5).
- As a general rule, the objective assessment system will be applied. In this case the taxable base will be obtained by multiplying the cadastral value of the land at the time when the tax becomes chargeable, by the coefficients approved by the city council based on the period during which the increase in value of the land is generated. Said coefficients may not be higher than those established in the regulation.
- In the direct assessment system, the taxable base will be the difference between the value of the land at the time of its transfer and the value it had on the date of acquisition. For such purposes, the value of the land used for the determination of the taxable base will be the greater of the following, without taking into account any expenses or taxes levied on such operations: (i) that which appears in the deed or document of title recording the transaction, i.e., the price of the transaction; (ii) that ascertained by the Tax Administration.
Thus, if the taxable base resulting from applying the direct assessment criterion is lower than that which would result from applying the objective assessment system, it will be in the taxpayer’s interest to be taxed under the direct assessment system.
Secondly, it is also worth highlighting that the law introduces a scenario of non-taxation (article 104.5). Thus, when the value of a piece of land at the time of its transfer is lower than the value it had at the time of its acquisition (in accordance with the provisions of the direct assessment system), the transaction will not be subject to the tax. In this case, the taxpayer will declare the transfer transaction as not subject to taxation and will provide the documents proving that there is no increase in the value of the land.
Finally, the transitory provision obliges the city councils that impose the tax to modify, within six months from the entry into force of the regulation, their local tax ordinances in order to adapt them to the content of the regulation. The tax base will be determined by applying the maximum coefficients established in the regulation until this modification has taken place.
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12th November 2021
