The municipal capital gains tax (plusvalía in Spanish), which is paid to city halls, taxes the increase in value of a property at the time it is sold. Naturally, the person who sells the property has to pay it. That said, what is happening is that despite there being no profit since the property is sold at the same price it was bought at, or even at a lower price, municipalities have been applying objective criteria which, despite everything, creates a fictitious capital gain solely for tax purposes. Municipalities do not consider whether there has been an actual increase in sale value, but instead deal with the property value, which they multiply by a coefficient which changes according to the number of years of that the buyer has owned the property, with a tax rate which is established by municipal ordinance.
For some time now, increases in the plusvalía have driven sellers to increase the sale prices of properties throughout Spain in order to pass that fee on to the buyer. This repercussion was stipulated in contractual clauses, which openly stated that the tax burden would be transferred to the person who purchased the property. It did not take long for such clauses to be declared unfair, and therefore void, by both the Spanish courts and the Court of Justice of the European Union.
For this reason, the clauses which saddled the buyer with the tax have been disappearing, but the underlying problem hasn’t, which is, without a doubt, administrative intervention in property sale prices “at all costs”. The problem is that the Law Regulating Local Finance keeps opening the door to municipalities creating the appearance of capital gains that do not really exist. It is no coincidence that in February of this year, the Constitutional Court ruled on this tax in the Historical Territory of Guipúzcoa, declaring invalid the articles of regional law which subject to taxation capital gains assessed in an “objective” and impractical manner which also do not permit evidence to the contrary. Recall that constitutional doctrine itself, in regards to what the Constitution calls “a just and progressive system of taxation based on principles of equality”, says that “in no case shall a legislator establish a tax considering acts or facts that are not examples of real or potential wealth”, meaning that taxes cannot be created which affect “those cases in which the economic capacity taxed is not already potential, but instead non-existent, virtual or fictitious”.
As you can imagine, these are not anecdotes, but instead represent a change of jurisprudential (and in the long run regulatory) course, which has come to stay. It is no coincidence that recently, the Court for Contentious Administrative Proceedings No. 1 of Burgos has voided the self-assessment of the plusvalía for the seller of a property which had been sold at a lower price than they had purchased it at due to market fluctuations. The municipality had applied an objective price increase in order to assess the fee to be paid, although there had been no increase in sale price. Specifically, it claimed that the area where the property was located “had been enjoying greater use”.
As it is, on May 11, 2017, the Constitutional Court declared the state plusvalía unconstitutional, extending its ruling for Guipúzcoa to the state level. Therefore, it is appropriate to claim unduly paid amounts by administrative means. If the claim is denied, the judicial process would begin. We shouldn’t have to pay for a taxable event that isn’t completely real. Luckily, there is a claim system which you can use. As lawyers, we can help you make that claim and recover the money you were wrongly charged.
Associate at ICN LEGAL