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Local Property Tax: Death sentence against levy of tax

The Constitutional Court declares the unconstitutionality and nullity of the regulatory precepts of IIVTNU (Tax on the Increase in the Value of Urban Land).

Today, Tuesday 26th of October 2021, the press office of the Advisory Department of the President of the Constitutional Court (TC= Tribunal Constitucional) published an informative note that is hereafter reproduced. It states that the Plenary of the TC has proceeded to: "declare the unconstitutionality and nullity of articles 107.1 second paragraph, 107.2.a) and 107.4 of the revised text of the Law regulating local finances, approved by Royal Legislative Decree 2/2004, of 5 March, in the terms set out in legal basis 6".

Municipal capital gains tax should not be levied in any way

This means that, in the opinion of the TC, the levy on municipal capital gains tax is not applicable, in any way, given that the amount to be paid is determined by an objective formula regulated in the TRLHL (Consolidated text of the Law governing the administration of territorial bodies); whereas the result of this law is always to obtain a tax payable, regardless of any increase in the value of the land and the real amount of that increase.

In this regard, may we point out that until now and on the basis of the famous STC (judgement of the constitutional court) 59/2017, of 11 May 2017, only those scenarios where there was no increase in value due to a transfer at a loss (delimitation: STS 1163/2018, of 9 July 2018) or, where appropriate, those situations in which the gain could be confiscatory (tax payable is higher than the increase obtained - STC 126/2019, of 31 October 2019) were refutable.

Judgment will be published in the coming days

The ruling, which has the particular vote of the President and dissenting votes of several judges, will be published in the coming days. From that moment onwards, we will be able to explain and report about the disclosures of the judgement, in detail.

However, this "turn of events" is going to move a flood of challenges and proceedings before the local councils against those settlements and self-assessments that were not fixed before the date of approval of the ruling. The consequences will surely have a deep impact in the Courts and Tribunals of our country.

In brief -as soon as the ruling is published-, we will be ready to evaluate the different scopes of this scenario. In the meantime, please do not hesitate to visit our office, or contact us with any questions you may have. Our Tax Department will be delighted to assist you.

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