- The Supreme Court concludes the tax is unconstitutional only where there is no real gain, not in every case.
- Whoever sells at a loss must prove it, for instance with the purchase and sale deeds of the property.
- The town council can rebut the evidence, and cases with a gain are still taxed under the statutory formula.
On 9 July 2018 the Supreme Court delivered a judgment (appeal 6226/2017) on the Tax on the Increase in Value of Urban Land, known as the municipal capital gains tax or “plusvalía”. The court interprets the 2017 Constitutional Court ruling and concludes that the articles regulating the tax base are void only where they tax situations in which there is no increase in value at all.
Since 2017 many regional high courts had held that the tax had been emptied of content and could no longer be levied. The Supreme Court judgment closes that debate: the tax remains in force, but a taxpayer who sold without making money is entitled not to pay if they can show it. This is the doctrine courts will apply from now on. The ruling dismisses the appeal of a bank against a judgment of the High Court of Justice of Aragon.
What the Constitutional Court said
The tax charges the increase in value of an urban plot over the years the owner held it, and the law calculated it with an automatic formula based on cadastral value and a coefficient depending on the years of ownership. The problem was that this formula produced a bill even when the property was sold for less than it was bought for. The Constitutional Court declared those provisions unconstitutional only to the extent that they taxed situations where there is no increase in value.
The Supreme Court concludes that, as a result, the tax-base articles are partially void and remain applicable where there is a gain. By contrast, the provision that prevented the taxpayer from proving there was no increase in value is annulled entirely, so evidence becomes possible in every case.
How to prove the loss
The Supreme Court explains that the taxpayer may provide any means of evidence admitted by law, and it expressly cites the deeds of acquisition and transfer of the plot. If the difference between the two prices shows there was no gain, it is for the town council, if it disagrees, to prove the opposite. The most common practical cases are those who bought before the crisis and sold afterwards for less. It is not enough to claim the loss: the documents must be provided, preferably in the appeal or claim filed against the assessment.
It should be noted that the Supreme Court’s approach is more restrictive than that of some courts, which held that the tax could not be levied in any case: here the burden of proof lies with the taxpayer. Even so, it gives real protection to those who have gained nothing.
What to review
Anyone who paid the tax on a sale at a loss can check whether they are still in time to request a refund, because the route and deadlines depend on how the tax was assessed and whether the act is already final. Anyone about to sell should gather the purchase and sale deeds before the assessment, so they can prove the loss if that is the case.
Property companies and owners with several properties would do well to review their recent transactions, because the position varies from one property to another. Each case should be discussed with an adviser, especially where appeals have already been filed.
The tax still exists, but it can no longer be charged where there has been no gain.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
