Until last year in Spain when you sold a real estate no matter if you had profit or loss you where obliged to file and pay to the Town Hall the Local Ground Tax that burdens the Increase of Value of Urban Land (Impuesto sobre el Incremento del Valor de los Terrenos Urbanos, IIVTNU, also known as Plusvalía Municipal). The deadline was 30 days after the sale in Public Deed, the Escritura by filing at the Town Hall copies of the purchase and sale of the property and a copy of the Local Ground Tax (IBI).
This obligation existed even if the sale´s price was lower than the acquisition one due to the fact that according to the applicable Law the taxable base was calculated according to the cadastral value and the years of ownership, having automatically as result a surplus.
This formula was challenged at the Constitutional Court and declared in 2017 unconstitutional by Constitutional Court Decision No. 59/2017, confirmed by the Supreme Court Resolution 1163/2018, of 09/07/2018. Those resolutions declared unconstitutional and void articles 107.1, 107.2, and 110.4 of the Law of Local Tax Regulatory Law, Ley Haciendas Locales, based on the fact that the formula used to calculate the tax did not allow proving a result different from that resulting from the application of the valuation rules it contained.
The Court now recognize taxpayers to prove the absence of an increase in the value of the land before the council administration or, where appropriate, before Court and also admits to request refund if not prescribed in 4 years.
The Supreme Court considers, in the first place, that it corresponds to the taxpayer to prove the inexistence of an increase in the value of the land onerously transmitted. And for more detail, it expressly says that to prove that there has been no taxable increase of value taxable: “the taxpayer may offer any principle of evidence, which at least shows circumstantial evidence¨ (as it would be, for example, the difference between the acquisition value and the transmission that is reflected in the corresponding public deeds)”. And this just even in an indicative manner, demonstrating a principle of evidence of the absence of a real and effective increase of value obtained in the transmission of the land.
We have had cases in our Firm with some Town Halls in which not only the acquisition value in Public Deed , was lower than the transmission one but also the cadastral value had been reduced during the period of ownership. And since it is precisely the cadastral value of the Land that is taken as a reference for the calculation of the Plusvalia and this had suffered as well as the price of transmission a considerable reduction we should understand that both evidences being strong enough to escape from the Plusvalía Taxation. But unfortunately, some Town Halls are very reluctant to recognize the Courts resolution as it represents for them a substantial loss of income in their the council´s treasuries and insist to tax as long as new legislation is approved.
Now what to do in these cases? If you have paid this tax in last 4 years – lapse of time of prescription – you can apply the refund of the amounts paid through an administrative procedure of refund of undue income, procedimiento de devolución de ingresos indebidos, If you have to pay it know, here are basically two options: the first one, to pay and claim back by means of the referred procedure ; or secondly, and more aggressive, to file a writ and the tax declaration autoliquidación without effective payment within the 30 days showing circumstantial evidence of the decrease of value and copies of purchase and sale´s deeds – and in its case also – the decrease of the cadastral value – and leaving to the Town Hall the burden of proof on contrary that it really existed an increase by means of appointing a real estate expert or valuator by them and at their expense.
Each case and each Town Hall are acting differently so if you have paid it in the last for years or have to pay now having sold under the purchase price please ask for information to your tax adviser.
Carlos Espinosa – Solicitor & Tax Adviser
(+34) 627 41 32 01