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The Unconstitutionality of the Municipal Added Value Tax

In just a few days there have been two judicial resolutions confirming the position that we have been maintaining and defending from this office before the administration and the courts: the illegality of the Municipal Added Value tax (also known as the Municipal Capital Gains Tax or commonly known as the municipal surplus value).

On the one hand, the Plenary Session of the Constitutional Court has agreed to declare the current Tax Regulation as unconstitutional, considering that it is not expressive of the taxpayer’s economic capacity, as required by the Constitution. Although the regulation declared as unconstitutional is the one that contains the Provincial norm regulating the Municipal Added Value Tax in Guipúzcoa, this regulation is a copy of Local Tax Law Articles 104 and 107, so that the declaration forces to modify state legislation and not only the Basque one.
On the other hand, Andalusia’s High Court of Justice (TSJA) has also joined the position that was previously set by the highest judicial bodies of other Autonomous Communities regarding the Tax, doing justice to the taxpayer’s claim. The tax rate has been declared as inadmissible when a property is sold for a lower price than the one purchased, herewith confirming the judgments that are already repeated in different jurisdictional bodies.
The Capital Gains Tax is a direct tribute of municipal nature that constitutes an important source of income for municipalities. It taxes the increase in the value of land that is revealed in a transfer by any title, thus establishing its calculation objectively, based on the land’s cadastral value. Therefore, in any case the result is positive, regardless of whether or not the increase in the value that constitutes the taxable event has actually occurred or not.
Both the TSJA and the TC consider that in these cases, imposing the Capital Gains Tax to the owner is not reasonably justified and it further implies a violation of Article 31.1 of the Constitution, according to which “everyone will contribute to the maintenance of public expenditures according to their economic capacity through a fair tax system (…)”. .
Thus, the following cases are ignored; namely the ones, in which, at the time of transmission, the taxpayer can prove that this increase in value has not occurred or that even the real estate has depreciated, as has occurred in several cases due to the economic crisis and when the real-estate bubble exploded.
If you have paid the municipal tax in the last five years, do not hesitate to contact us. We put our extensive experience at your disposal as well as the best professionals.