Can I claim a refund of the tax on increase in urban land value if I sold for a profit?
As you already know, the Spanish Constitutional Court, in its judgment of May 11, 2017, declared various articles of the Local Finances Law (Ley Reguladora de las Haciendas Locales or LRHL) to be unconstitutional, insofar as they imposed tax on situations where there were no increases in value, deeming them not to express economic capacity and to prevent taxpayers from proving this circumstance.
All of the foregoing is on terms very similar to the position taken in the judgments of February 16 and March 1, 2017 (which we already had the opportunity to discuss) on the provisions regulating the tax on increase in urban land value (more commonly known in Spanish as the plusvalía municipal) in the “historical territories” of Guipúzcoa and Álava.
Nonetheless, the municipal authorities continue to collect the plusvalía municipal, while waiting for a legislative changes that should be approved shortly. And they do this not only where there has been a theoretical increase, but also where there has not.
Clearly, in connection with the latter cases (where there has been no increase), it should be possible to appeal the related assessment or request rectification of the related self-assessment. In this article, however, we do not wish to overlook the cases in which there has been an increase because, according to the position taken by some courts and tribunals, there would also appear to be grounds in such cases for appealing or requesting rectification of the related assessments or self-assessments of plusvalía municipal.
In this connection, the news is that the Madrid High Court, in its recent judgment of July 19, 2017, upheld the position already taken by the Judicial Review Courts of Santander and León, among others, which is to interpret that, until a new Law has been issued, article 107.1 and 2 and article 110.4 of the LRHL have been removed from the legal system and, accordingly, the tax authorities cannot assess the plusvalía municipal simply because they lack legal coverage to do so, having regard to the principle of legality applicable to tax matters.
This is the true, according to the judgment, whether or not there has been an increase, because only the legislature can resolve this matter in the future.
We cannot dismiss the possibility that this judgment could be appealed in cassation at the Supreme Court, which could, in turn, rule against the taxpayer’s interests.
Nonetheless, until a new law is issued, the legal vacuum created by the judgment of the Madrid High Court has opened the door to appeals or requests for rectification of all assessments or self-assessments of plusvalía municipal, which could be rendered void as a matter of law, according to the High Court, due to having been quantified on the basis of unconstitutional articles.
Accordingly, it would be advisable to review, as soon as possible, all property sales made in the last four years, not only if a loss was incurred, but also if they disclosed a profit, with a view to assessing the possibility of obtaining a refund of the plusvalía municipal paid.
Garrigues Tax Law department
This article was publised on Diari de Tarragona
