For those who do not know, the “Impuesto sobre el Incremento de Valor de los Terrenos Urbanos”, more commonly referred to as the “Plusvalía” Tax, is a local capital gains tax on the value of urban land, levied when a property in Spain is sold, inherited o gifted. However, the gain being taxed was not a real gain, but rather a fictitious, which resulted in the tax always being owed irrespective of whether there had been an actual gain as a result of the transaction.
In 2017 the Constitutional Court started by ruling that levying the tax when there was no real increase in value of the property (e.g. when the property is sold at a loss) is unconstitutional, although it was not particularly clear about when it should be considered that such an increase in value exists (see our post «Plusvalía» Tax declared unconstitutional in certain cases).
The Constitutional Court ruling of the 26th October 2021 has declared the method of calculation of the “Pluvalía” Tax unconstitutional, thereby cancelling the tax. However, much like the ruling on mortgage floor clauses, which was eventually overturned by the European Court (see our post “Floor clauses” in Spanish mortgage contracts: What are they? What do they mean? What can you claim?…so many questions.), this ruling is yet another example of the politicization of the Constitutional Court to protect public funds.
Despite having ruled the method of calculation to be unconstitutional, the ruling also states that tax bills issued before the date of the ruling will not be subject to revision when a court ruling with the force of res judicata or a final administrative decision exists, which is usual an legal in such cases. However, the ruling goes beyond this stating that provisional and final tax assessments not appealed before the date of the ruling will also be considered “consolidated positions”, and therefore not subject to revision. This results in denying individuals who have received a “Plusvalía” Tax assessment in the last 4 years the right claim any part of it back in the huge majority of cases, or even to have the assessment cancelled in the cases where the amount has not even been paid yet.
This limitation has shocked the Spanish legal community, given that Spain was already held accountable in the almost identical instance when the Constitutional Court tried to limit such claims in the matter of the mortgage “floor clauses” by the European Court of Justice, when they reversed the court’s decision for being contrary to national and EU law. It is therefore no surprise that there is already talk of taking the decision to the European Court.
The ruling is frankly embarrassingly in breach of Spanish and EU law, as that which is unconstitutional is null and void, and we can only hope that this injustice will be remedied by the European Court.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
