B Law & Tax
06 March 2024

New Supreme Court ruling on IIVTNU refunds

Recently, a Supreme Court ruling has highlighted the issue of the refund of the IIVTNU, or capital gains local tax.

In a communiqué published on the official website of the Judiciary, the ruling issued by the Supreme Court Chamber on February 28th, 2024, is anticipated.

The Chamber holds that the restitution of the Tax on the Increase in Value of Urban Land (IIVTNU) is appropriate.

This refund occurs even if the settlement is final, when in the transaction that gave rise to the settlement there is no increase in value and, therefore, a gain that did not actually exist was taxed.

The Supreme Court, in a review of its doctrine, concludes that, given that the declaration of unconstitutionality made by STC 59/2017 of May 11th, 2017, presents no limitations as to its effects, the final capital gains settlements that obliged taxpayers to make payments in cases where there was no increase in value in the land are null and void.

The general rule established by the Constitution in these cases is to minimise as far as possible the effects of the law deemed unconstitutional.

The difficulty for the refund of the amounts paid lay in the fact that, in cases of final settlements that were not challenged within the deadline, there was no clearly defined procedure in the tax legislation to review these settlements ex officio, even if a law deemed unconstitutional had been applied.

Despite the fact that STC 59/2017 declared certain provisions of the regulation of the Tax on the Increase in the Value of Urban Land to be unconstitutional, previous case law had held that this declaration did not affect final and consented settlement acts, as there was no ex officio review mechanism in the General Tax Law.

In its ruling of February 28th, the Supreme Court considers that the application of the unconstitutional law has resulted in a tax burden in situations where there was no real increase in value or wealth subject to taxation.

It is argued that in such cases the principle of economic capacity and the prohibition of confiscation established in article 31.1 of the Constitution are violated, and that the same Constitution requires that the effects of the application of a law deemed unconstitutional be annulled as far as possible.

Under this interpretation in accordance with the Constitution, the Supreme Court holds that article 217.1.g) of the General Tax Law allows for the ex officio review of final assessments in cases where no increase in value of the land is observed.

Although the wording of the General Tax Law is not explicit as to the consideration of these cases as null and void, the Constitution and the Organic Law of the Constitutional Court enable the classification of these settlements as null and void and allow the Local Councils to request the refund of the amounts paid, together with the corresponding interest.

With this judicial decision, a unified criterion is established with respect to a matter that has been dealt with in a disparate manner in different contentious-administrative courts, and the previous case law of the Supreme Court is modified.

B Law & Tax International Tax & Legal Advisors.


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