30/05/2018 - Tax

Note on the Draft Law regarding Municipal Capital Gain Tax

Autor: Elena Bárnaba Sanz

The Municipal Capital Gain Tax (IIVTNU) is a tax payable on the transfer of urban land by any title or by the constitution or transfer of a right in rem constituted over real estate.

Its tax base was always to be determined objectively on the basis of cadastral value and years of holding (with a maximum of 20 years).

This formula simplifies the procedure but distances the result from reality.

For instance: no loss of value can be determined as a result of its application. This is because the formula always results in theoretical increases.

Moreover there is no proof to the contrary, that is to say, the taxpayer can not prove that in his particular case he has not obtained any profit when transferring a property.

The Spanish Constitutional Court’s ruling of May 11, 2017 rejected the possibility of taxing non-existent increases in value and declared Articles 107.1, 107.2.a) and 110.4 of the tax legislation governing the MCGT unconstitutional and null and void. However, it did so by clarifying that this was insofar as it did not exclude from taxation situations where there was no expression of economic capacity as a result of a lack of increases in value.

Therefore, the Court declared that it was the legislator who had to modify what he considered appropriate in this regard.

In this situation, taxpayers, city councils and administrative courts interpreted the ruling in different ways and adopted different positions accordingly.

Among the courts, a disparity of criteria and tendencies was generated, which determined the presentation of cassation appeals to obtain a ruling from the Spanish Supreme Court.

In this context, on March 9, 2018, the Draft was published in the Official Gazette of the Spanish Cortes Generales amending the text regulating the MCGT to adapt the regulations challenged by the Constitutional Court.

The Draft:

-adds a new case of non-liability consisting of a lack of increase in value, which may be credited by the taxpayer.

-it also modifies the formula for calculating the tax base in force up to now by means of introducing maximum coefficients established on the basis of the number of years that have elapsed since the land was acquired (which will be updated annually).

-it establishes that the local councils can carry out the appropriate checks.

-finally, it contains a mandate for local councils to adapt their tax ordinances (and provides for a transitional regime).

At the present time, the Proposition is in process.

The amendments relating to the new case of non-liability and the powers of verification would operate with effect from 15 June 2017.

The changes relating to the determination of the tax base would have effect from the entry into force of the Law, from the day following its publication in the Official State Gazette.