The tax on increase in urban land value on sales of real estate at a loss
The municipal tax on increase in urban land value (known as the plusvalía municipal) is currently being charged by the municipal authorities on all transfers of real estate, regardless of whether the result for the vendor is a gain or a loss. In the light of the increase in the cadastral value of real estate, which more and more frequently exceeds the market value, this tax has become a priority for municipalities and is an issue that must be evaluated by vendors, especially where the sale is made at a loss.
If, according to the definition of the taxable event, the economic capacity on which the plusvalía municipal is charged is the “increase in land value”, it would seem obvious that, where a loss is incurred, the tax should not become chargeable. Nonetheless, the municipal authorities insist on its unconditional chargeability, having regard to the methodology for determining the tax base stipulated in article 107 of Legislative Royal Decree 2/2004 regulating the Revised Local Finances Law (Texto Refundido de la Ley Reguladora de las Haciendas Locales or TRLRHL).
As a result of appeals filed by vendors, both in cases of loss and in cases in which the gain obtained was much less than that required by the municipal authorities, a number of high courts and tribunals have ruled in favor of the taxpayer in such matters. See for example the recent judgment of Valladolid Judicial Review Court number 4, handed down on July 31, 2015, admitting the request for a refund filed with the Valladolid municipal authorities by the taxpayer who had paid the tax.
The Valladolid court judgment takes the same view as that taken by the Cataluña, Madrid and Valencia High Courts or by the Alicante, Madrid or Zaragoza Judicial Review Courts. Special mention must also be made to the decision handed down on February 5, 2015 by the San Sebastian Judicial Review Court, which raised the issue of the constitutionality of the method used to calculate the tax base, article 107 of the TRLRHL and article 110.4 of the TRLRHL, to the Constitutional Court. The case was admitted for consideration and is now pending judgment.
Given that the effects of a judgment favor only the claimant, anyone who has been affected by this matter should bring the related proceeding, if deemed appropriate, in which to claim in court and justify the loss, with a view to recovering (or not paying) the plusvalía municipal. It will then be the judge with jurisdiction on the matter who decides whether or not to admit each specific proceeding.
Ángeles Pérez de Ayala
Garrigues Tax Department
Local Tax area responsible
