As we announced in our blog last week, the Constitutional Court has published its sentence on the unconstitutionality issue 4433/2020 regarding the Tax on the Increase in Value of Urban Land or, colloquially known as “Plusvalía”.
CONTEXT OF THE TAX CONTROVERSY
In order to understand the context of the controversy surrounding this tax, we should point out that this sentence is not the first to rule on the constitutionality of this tax. There have already been various constitutional notices and, specifically, the STC 26/2017 covered the issue of its tax object.
This sentence already established that “we are not, therefore, faced with a tax that subjects a transfer of assets to taxation, as the object of the tax is not linked to the fact of the transfer, although this is used to trigger the tax obligation; nor are we faced with a tax that taxes assets, as its object is not the mere ownership of the land, but the increase in value”, so the lack of legal basis of this tax had already been anticipated.
On the other hand, STC 59/2017, in its Legal Basis 13, established that, with respect to the challenged articles, “the fiction that an increase in value liable to taxation has taken place at the time of any transfer of land simply because the owner has kept it in his estate for a given period of time”. This means that tax would be levied on non-existent wealth and contravenes article 31 of the Spanish Constitution because the tax is not made taking into account the public or private urban development action and, therefore, an increase in value.
In conclusion, in 2017 the Constitutional Court declared two articles unconstitutional on the grounds that they were subject to taxation in situations where there was no increase in value and in 2019, the Constitutional Court declared “Plusvalía” unconstitutional when it was higher than the increase in value.
WHAT DOES THE CONSTITUTIONAL COURT ESTABLISH IN ITS LATEST SENTENCE?
In the current sentence under analysis, the Court applies the constitutional doctrine of past sentences regarding the configuration of this tax and declares articles 107.1, second paragraph, 107.2.a) and 107.4 of the TRLHL (Spanish legislation) null and void regarding the determination of the tax base “for unjustifiably contravening the principle of economic capacity as a criterion for taxation (art. 31.1 CE)”.
Furthermore, it establishes that “the maintenance of the current objective and compulsory system for determining the tax base, as it is alien to the reality of the real estate market and the economic crisis and, therefore, outside the economic capacity levied by the tax and demonstrated by the taxpayer, violates the principle of economic capacity as a criterion for taxation (art. 31.1 EC)”.
However, the reality is quite different, since the application of the principle of economic capacity as a criterion or parameter of taxation to the rule for quantifying the taxable base of “Plusvalía” has led the High Court to consider articles 107.2.A and 107.4 of the TRLHL (Spanish legislation) unconstitutional for “establishing a single method for determining the entire taxable base, and not part of it, of an objective nature and of mandatory application”.
The legislator intended to create an objective valuation rule for the increase in the value of the land and that, on the contrary, economic reality has questioned this presumption, as the tax base of the tax is far from the idea of quantifying increases in value. For this reason, the Constitutional Court established that the tax cannot be based on situations unrelated to the economic capacity of the taxpayer, as this could contravene the principle of non-confiscation.
Also noteworthy is the Court’s reference to the fact that “the legislator enjoys a wide margin of freedom in the configuration of taxes”, although the principle of economic capacity “as a measure of the tax burden” is a limit to the legislator’s configuration.
WHAT ARE THE EFFECTS OF THIS SENTENCE? CAN IT BE CLAIMED?
As we already knew through the informative note of 26 October 2021, the sentence establishes important limits to its scope and effects in order to guarantee legal certainty.
Firstly, the declaration of unconstitutionality of the precepts analysed means that they will be expelled from the legal system, which means that Local Public Bodies will be aggrieved as, from 26 October 2021 (the date of publication of the sentence), they will not be able to make settlements for this tax and a legal vacuum that should be resolved for greater legal certainty.
Likewise, something to be highlighted is that “it is the legislator (and not this Court) who, in the exercise of its freedom of regulatory configuration, will carry out the relevant modifications or adaptations to the legal regime of the tax to adapt it to the requirements of art. 31.1 EC, as highlighted in all the constitutional pronouncements on the legal precepts now annulled”, so we must await to know whether a new tax quantification will be configured for this tax or whether, on the contrary, the legal vacuum of this tax will remain.
Secondly, with regard to your possible claim, the Court is quite clear and closes the door to any type of claim with retroactive effect for those levies of this tax that have been “definitively resolved by means of a judgment with the force of res judicata or by means of a final administrative resolution” as of the date of publication of the judgment (26/10/2021), in addition to:
- Provisional or final settlements that have not been challenged at the date of this sentence.
- Self-assessments whose rectification has not been requested under article 120.3LGT at that date.
These limitations and effects eliminate any type of positive result for those judicial and/or administrative proceedings that have not been initiated prior to the sentence.
Finally, at MDG Advisors we will be waiting to find out what measures the legislator will take with regard to the new configuration, if it will be implemented and what the long-term effects of this court sentence will be.