B Law & Tax
07 February 2024

Tax Advisor: Supreme Court jurisprudence on refund of undue payments in the IBI and challenges in challenging the cadastral value

The Supreme Court, in a recent ruling issued on December 21, 2023, not only reaffirms a fact that may seem evident, such as the right to recover IBI payments that have been improperly made when a cadastral value is annulled. This annulment typically entails the need to establish a new cadastral value in accordance with the resolution or favorable judgment for the owner.

Additionally, the ruling also highlights the reprehensible behavior of some local administrations, which hinder or deny the refund of improperly collected taxes, citing the finality of the settlements that become improper due to the annulment of the cadastral valuation.

Challenges and Solutions in Challenging the cadastral value

This problem arises due to the complex management of various local taxes, such as the IBI and the IAE, which also indirectly affect the municipal capital gains tax (IIVTNU). The cadastral value determines the taxable base of these taxes, but challenging this value is not directly possible against the IBI settlement.

Instead, the cadastral value must be challenged through specific procedures, either upon receiving a new value or by subsequently demonstrating its incorrectness.

This difference in challenge methods results in different legal processes that can create complications, such as deciding whether to challenge tax settlements that use the disputed cadastral value. Although it might seem sensible to challenge these settlements, in practice, this is often not effective because these procedures are generally not allowed to be suspended until the appeal against the cadastral values is resolved. This leads to the settlements becoming final anyway, and even costs being imposed on the taxpayer challenging the cadastral value, as appeals against settlements are usually resolved before appeals against cadastral values.

The settlements subject to the process had a conditional finality since they were subject to the outcome of the cadastral challenge that the taxpayer themselves had filed, with the Municipality’s knowledge, before the competent cadastral management body.

If the taxpayer does not file an appeal, they could face significant risks when requesting the refund of incorrect payments due to erroneous cadastral values. The local administration could consider that the taxpayer’s right has expired or that the settlements are final, which would limit recourse options. However, the Supreme Court has recently corrected this situation, requiring the initiation of certain procedures if certain conditions are met.

The taxpayer manages to reduce the cadastral value after a challenge process, although this occurs years after the initial challenge. However, upon achieving annulment, the Alcalá de Henares City Council argues that the refund of undue payments cannot be requested but rather a revocation must be requested. Although the regulations do not explicitly address these scenarios, there are interpretations suggesting that the taxpayer is entitled to a refund of excessive IBI payments.

If the taxpayer challenges the values assigned to their properties within the cadastral management framework and obtains a firm decision annulling these values, the municipality cannot argue the existence of a duality in the procedure to maintain the validity of these settlements.

Supreme Court: Confirms Refund of Undue Payments

The Supreme Court revises its jurisprudence and confirms the viability of the procedure for refunding undue payments to address these unfair situations. It emphasizes the importance of the regulation of the appeal process, which allows the continued demand for taxes such as the IBI but ensures the refund of undue payments in the event of a cadastral value annulment, without the need to challenge the settlements.

In the case of jointly managed taxes like the IBI, if, as a result of a deficiencies correction procedure under article 18 of the TRLCI, the cadastral value of a property affecting firm IBI settlements is reduced, it is possible to directly request the refund of the undue payment derived from this without initiating a review procedure under article 221.3 of the LGT.

The ruling also recognizes the right of taxpayers to recover IBI payments from previous periods, even before the date of the resolution of the discrepancies correction procedure. This pronouncement is relevant not only for the IBI but also for the municipal capital gains tax.

Although the Constitutional Court declared unconstitutional the rule for calculating the taxable base in a ruling of October 2021, this does not prevent challenging settlements based on incorrect cadastral values. If these settlements are annulled and refer to periods before the date of the ruling, the Municipality cannot issue a new settlement based on the corrected new cadastral value.

The Local Treasury should have revoked these IBI settlements ex officio when it became aware that the taxable base used was incorrect.

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