B Law & Tax
03 October 2023

Tax advisor: The Supreme Court seeks to clarify jurisprudence on municipal capital gains tax following multiple Constitutional Court rulings

The Constitutional Court ruled in 2017 that imposing a tax when there has been no
economic gain is not legal and that this tax is contrary to the principle of economic
capacity established in Article 31.1 of the Constitution.

Another Constitutional Court ruling on October 26, 2021, determined over three
years later that the method of calculating the tax was unconstitutional. In this ruling,
the Court of Guarantees restricted who could request a refund, excluding those who
had not previously challenged the tax before the ruling. However, in the 2017
decision, there were no restrictions on the possibility of recovering the amount.

In a third resolution by the Constitutional Court in September 2022, the highest court
revised its previous doctrine and established that “provisions declared
unconstitutional must be declared null, which implies the possibility of their revision,”
in contrast to what was not done in the initial 2017 judgment.

Therefore, in an order issued on July 20, 2023, the Supreme Court requests to
“clarify or, where appropriate, rectify the case law in relation to which the declaration
of unconstitutionality included in the 2017 judgment does not establish that previous
assessments of the tax on the increase in value of urban land, which have become
final in administrative proceedings, are subject to nullity”.

“It is not possible to categorically rule out that the terms in which the aforementioned
2022 judgment is expressed may have an impact and raise doubts about the full
validity of the indicated case law”,  the Supreme Court adds.

In the last five years, the municipal capital gains tax has been declared
unconstitutional three times, with judgments addressing the impossibility of imposing
this tax when a property has been sold or transferred at a loss in 2017, the
prohibition of it being confiscatory in 2019, and its calculation formula in 2021.


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