The mess of the Municipal Capital Gains Tax and its calculation up to now, and in the future.
Last November 3, the Constitutional Court published, after the advance of the ruling, the final judgment (dated October 26) regarding the declaration of unconstitutionality and nullity of the objective system of calculation of the taxable base of the Tax on the Increase in the Value of Urban Land (popularly known as municipal capital gains tax), considering it contrary to the principle of economic capacity in all cases, and not only in certain cases, as we reported in previous publications.
Municipal Capital Gains Tax and its calculation
As of October 26, therefore, the tax ceases to apply in all cases. Including both the operations executed at a later date, as well as those that, even though executed previously, were pending liquidation by the corresponding Town Hall. Or of self-assessment by the taxpayer. And this regardless of whether between the acquisition and the transfer there has been an increase in the value of the land transferred.
Regarding the effects of the pronouncement on previous operations already settled. According to the ruling, those settlements or self-assessments not challenged before October 26 will not be reviewable, and will therefore be considered final. This includes those situations in which, even though a claim has been made, a final resolution or sentence has been handed down.
Claims for non-firm liquidations and self-assessments will be successful. That is to say, whose claim had already been made previously, being awaiting resolution by the Public Administration.
On the other hand, all settlements and self-assessments that have been settled between October 26 and November 10, 2021 (date of entry into force of the new regulations), will be considered null and void. Therefore, the amount will be refunded.
Calculation of the new Municipal Capital Gains Tax
On November 9, 2021, Royal Decree-Law 26/2021 was published, which adapts the text of the Law Regulating Local Treasuries to the aforementioned jurisprudence of the Constitutional Court. This includes two alternatives for determining the taxable base of the tax. Allowing citizens to choose the most beneficial option for them:
- On the one hand, it may be calculated by applying the coefficient approved by the City Council to the cadastral value of the land at the time of the transfer. This objective calculation system is similar to the one that existed in the repealed regulation.
- The second option, which is the novelty of the regulation, will consist of determining the real revaluation of the land. For this purpose, the difference between the purchase price and the sale price will be taken into account, applying the proportion corresponding to the land. In order to accredit the transfer price, the price indicated in the deed, or the value revised by the Town Hall, will be considered.
The date of entry into force of this Royal Decree is November 10, 2021, and it does not have retroactive effects. Therefore, it will not be applicable to transactions executed before its entry into force. RDL 26/2021 was validated by the Congress of Deputies on December 2, 2021.
In short, for operations prior to November 10, 2021 and pending liquidation, municipalities should refrain from liquidating the tax. However, each municipality may follow different criteria. And we have already encountered several cases in which the municipality in question confirmed to us the non liquidation of the tax. Otherwise, the taxpayer would be entitled to file a claim.
| Transaction date | Tax status | Effect of the STC |
| Up to 25/10/2021 | Final liquidation | Not affected |
| Until 25/10/2021 | Pending liquidation or liquidated without having become final | The application of the tax is annulled |
| From 26/10/2021 to 9/11/2021 | Indifferent | The application of the tax is cancelled |
| From 10/11/2021 | Indifferent | The new regulations are applied |
Repercussions
First ruling annulling capital gains tax in application of the TC ruling. On November 25, the Administrative Court No. 1 of Pontevedra issued the first ruling in line with the provisions of the Constitutional Court in relation to the declared unconstitutionality of the capital gains tax.
The ruling states that all tax assessments prior to November 10, 2021 that are not final because they have been appealed must be declared null and void. The court also emphasizes that the nullity of the tax occurs regardless of whether there has been an increase or decrease in the value of the property between the two transfers.
