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No quick or peaceful solution

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Miguel Ángel Galán analyses the municipal added value tax

More than a year has passed since the Constitutional Court declared some of the rules governing what is commonly known as "plusvalía municipal" unconstitutional.

And far from being an end to the high level of conflict that has been going on since the beginning of the real estate crisis in relation to the Tax on the Increase in the Value of Urban Land (Iivtnu) -this is its technical name-, it has been a point and followed, albeit for different reasons.

There are two reasons for this situation. The first, without a doubt, is the lack of modification of the Local Treasury Law, which is being unjustifiably delayed in the interests of all.

And the second, the lack of clarity on the part of the Constitutional Court of the effects of the aforementioned sentence; or perhaps the interpretation of the same by the ordinary courts of justice, since they have taken different positions regarding the scope of the sentence which, as we say, was perhaps not correctly established by the Constitutional Court.

With regard to the reform of the Law on Local Treasuries, it is necessary and urgent, and we must remember that it is a mandate of the Constitutional Court's own ruling, since, as it states, "to determine the existence or not of an increase susceptible to taxation is something that only corresponds to the legislator, in its freedom of regulatory configuration, from the publication of this ruling".

The latest news in this regard is that the Congress of Deputies, on May 29th, began processing a bill from the Popular Party to reform the Law of Local Treasuries. But in view of the latest developments in Spanish political life and the change of government, it does not appear that the process will be a priority, quick or possibly peaceful one.

And it would not be superfluous to amend the proposal, since in our opinion it does not provide an adequate technical response to the tax, while the explanatory statement' verges on mockery, by stating that the law is intended to provide a rapid response to the High Court's mandate'. We are still waiting.

Scope of the judgement
As for the scope of the sentence, as we indicated, it is not orderly and has been interpreted in different ways by the different courts of justice, to the point that the appeal of cassation before the Supreme Court is currently pending, to resolve an issue that is entirely crucial to determine the legal validity of a huge number of capital gains that have been liquidated both before and after it.

As a starting point for this issue, it should be remembered that the ruling declared certain provisions of the Law unconstitutional, insofar as they allowed the liquidation of the Iivtnu in cases that were not expressive of economic capacity. Basically, the cases in which sales were made at a loss or without any profit. The regulation of the tax undoubtedly ignored the economic reality of the operations it taxed.

But the question that has now arisen strongly in the courts is whether the articles that have been expelled from the legal system "ex origine" can serve as a basis for settling the tax even if the taxed operation does show economic capacity; when there is capital gain or a positive result of the operation.

This is the issue that is not peaceful, and which has led, as has been said, to the Supreme Court, on this occasion, accepting the appeal in cassation to rule on this issue.

And the importance of the ruling will not be trivial, because if the Supreme Court interprets that there was no legal basis for the acts that were dictated before and after the sentence, having the rules expelled as a basis, they will not be legally valid. And this is without considering the result of the operations it taxes, whether they be at a loss, without profit or with a profit, whatever the profit may be.

Reclaim the municipal payments

Following the ruling, the possibility was opened of recovering those quotas paid on transfers in which there had been no increase in the value of the land, provided that the settlements were not final.

And the Supreme Court's ruling could open the way to claiming back almost all the payments carried out by the town halls, even in cases where there has been an increase in value.

We must not lose sight of the decision of the High Court of Justice of Navarre on this point, when deciding on the appeal in question, which is identical to the question raised, although in the context of the provincial legislation, which is essentially the same as the situation affecting the common legislation, since it has ruled that, having been expelled by the Constitutional Court, the acts based on the same must also be expelled in any case, without taking into account the positive or negative outcome of the operation.

Anyone who has paid a capital gain and the liquidation has not reached finality must be attentive to the Supreme Court's ruling, pending the resolution of the issue raised.

Nor will it be necessary to rule out the possibility of appealing against any liquidation to keep it legally alive and to see whether the amounts paid can be recovered. 


For further information, please contact:

Miguel Ángel Galán

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