Abogados y Economistas

13·05·2018

New ruling of valued added land tax allows to taxpayers to recover their money

- José Sáez Martín

WHAT IS NEW?

Valued Added Land Tax (VALT or commonly known in Spain as “Plusvalía Municipal”) is a municipal tax which was born to tax the increase in the value of urban land during the tenure period in the patrimony of the taxpayer. It is regulated in the articles 104 to 110 of Royal Legislative Decree 2/2004 of March 5, which approves The Local Treasuries Law.

Recently, The Spanish Constitutional Court made a new ruling on May, 11th 2017 Sentence by annulling these articles of the Local Treasuries Law, because of situations where there were no real increases in land value that was being unfairly taxed.

The Constitutional Court concluded that the method of calculating the tax was not objective and did not reflect the reality. This was because on numerous occasions, there was no increase in the real value of the land, and yet, the VALT hat to be paid.

CONSEQUENCES OF THIS RULING

The Judgment of the Constitutional Court had removed the quantification method from the legal system “ex origine”. Specifically, articles 107.1, 107.2.a) and 110.4 of the Local Treasury Law have been removed from the Spanish legal system.

This means that from the introduction of the Law, those cases where there were no real increase in the value of the land, the taxes paid was deemed unconstitutional and therefore recoverable.

With this new ruling, the judgment of the Constitutional Court allows recovering de facto, to individuals and companies, the amount paid for VALT to any taxpayer that had incurred in losses.

HOW THE SPANISH REGIONAL COURTS ARE APPLYING THE JUDGMENT OF THE CONSTITUTIONAL COURT

Nowadays, the judiciary is being especially strict with regard to unconstitutionality of the tax.

The most recent judicial pronouncements argue that if the rules for determining the taxable income (tax base) are erroneous or inadequate, when the reality of the operation reveals losses in the value of the assets, then the courts assumes that the aforementioned rules do not adequately quantify the taxable event in any cases.

Furthermore, the above ruling is transferable to any situations of quantification the taxable income, either positive or negative.

WHO CAN CLAIM AND WHICH ARE THE DEADLINES

Prior to these last judicial pronouncements previously mentioned, it was considered that in cases of decrement of the assets value (urban lands) were appealable since the Constitutional Court´s Judgment. In fact, with this jurisprudential line open, it is understood that any situation can be claimed with one limit, the prescription. Tax prescription is fixed by the 4-year general rule.

Therefore, any taxpayer who had paid the VALT in the last 4 years could claim a refund, regardless of whether the tax was accrued because of a sale, inheritance or any other taxable event assessed in the Local Treasuries Law.

SHOULD WE CONTINUE TO PAY VALT?

Up until now, the Local Treasuries Law has not been reformed to correct the unconstitutional articles contained within the current Law, consequently the wording of the Law is still valid and applicable. Therefore, we recommend to pay the tax and then, start to claim.

Although some City Councils have stopped collecting VALT, most of them continue to demand the tax as they had always been doing.

Recently, a draft reform bill on the Local Treasuries Law has been published with the purpose of covering the actual legal vacuum. In this draft it is contemplated the deeds of property could serve to demonstrate the loss of value of the land.

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