The Constitution says that the municipal tax will only have to be paid if there is an increase in the value of the land.
On February 16, the Constitutional Court (CC) unanimously resolved the unconstitutional tax on the increase in value of urban land (IIVTNU) in Gipuzkoa, when the transfer of a property had been sold at a loss, a measure that Ayming, international consulting group in improving business performance, confirms has been extended to the rest of Spain.
In fact, the CC has pronounced itself on the surplus value at state level and has once again proved the taxpayer right in identical terms to the provincial one, on May 10. There will therefore be no need to pay the capital gain when real losses have been obtained in the sale of a property.
Last February’s resolution paved the way for the filing of numerous claims to recover amounts previously unduly paid for capital gains. During this time, taxpayers have been learning how they can prove that they do not have to pay the amounts previously claimed for the tax.
The legislator reacted quickly to avoid the possible patrimonial loss that the ruling of the CC could provoke in the City Councils of the provincial territories, separating the value of the land and the construction value for the calculation of the tax. The City Councils collected 2,625 million euros for the IIVTNU in 2015 (the last year for which there is closed data), and with the measure of the CC they will see their income considerably reduced.
Until now, the tax basis for measuring the increase in the value of land that a property undergoes was determined by applying coefficients based on the period of ownership of the property to the cadastral value of the land at the time of transfer. It did not take into account the real gain or loss that the taxpayer has when transmitting the property, but the increase in value of the land applying the mathematical rule established in the regulations.
In view of the imminent avalanche of claims to recover previously unduly paid capital gains, the Provincial Council of Gipuzkoa published the Foral-Norma Decree 2/2017, and that of Álava the Fiscal Urgency Legislative Decree 3/2017, on March 28. In both Decrees, the reference value for determining whether or not there is capital gain is the real purchase value corresponding to the value of the land. It is established that there will be an increase in the value of the land when the transfer value is higher than the acquisition value. Only in the event that there is an increase in the value of the land will the taxable base, the tax liability, and the other elements of the tax be determined.
If the acquisition and transfer values taken into account to determine the existence of value are not broken down, the criterion for determining the acquisition and transfer value of the land on which the real estate is built must be related to the % of the value of the land and construction established by the last receipt of the Real Estate Tax in force at the time of the transfer. Both decrees establish that appeal for reversal pending resolution shall be resolved taking into account this criterion established in the Provincial Decrees.
“The legislator has finally decided to implement this measure at the state level which may suggest that the cases in which there is really no chargeable event for the tax to accrue when a taxpayer has patrimonial losses in the transfer, are very minor,” said David Garcia Vazquez, Head of Tax Consultancy at Ayming.
This measure is detrimental to real estate development companies at the time of the construction of buildings. The costs arising from it at the height of the real estate bubble were very high (technical personnel, labor, materials, licenses, etc.), and therefore, with the subsequent real estate crisis, the cost of selling the property was significantly lower than the cost of production of that property. It could be the case that they have to pay a capital gain quota higher than the profit obtained from the sale of the property.
HOW TO PROVE THAT THERE IS NO INCREASE IN VALUE
The CC does not clarify in the content of the sentences, which is the procedure for the taxpayer to prove that there was no added value in its operation, so we must look at the means of evidence presented by the taxpayer in the judgments of the courts issued in this regard and that are favorable to the taxpayer, as the expert report presented in the judgment of the Court of Contentious Administrative Vitoria Gasteiz on May 21, 2015, in which the basis of which the liquidations of the IIVTNU were annulled.
The taxpayer must rely on what is provided for them in the common territory. In common territory we can highlight, among others, the following resolutions: The report on the value of the land issued by the Junta de Castilla y León suggests the taxpayer provides for the judgement of the High Court of Justice of Castilla y León, dated June 10, 2016. In private claims, we can highlight the criterion established in judgments of the Supreme Court of Justice of the Valencian Community, at the end of 2016, that with the deeds of purchase and sale of the property is justified sufficiently when there are losses.
In the case of companies, the burden of proof is more troublesome and we will have to go to the expert evidence and also examine the balance sheets of the company that reflects the operation. The expert evidence in this sense is very diverse: we have reports of independent technicians, reports of the value of the land emitted by public organisms, and finally, reports of appraisers. In any case, it is advisable to provide technical means when justifying the loss of the value of the land.
“The higher the taxpayer’s losses, the easier it is for the taxpayer to prove the absence of the taxable event,” continued David García Vázquez. Going to court is not recommended if the settlement to be claimed does not exceed 10,000 euros, but it is advisable that if we have any type of loss, we start the challenge in the administrative way, as this paralyzes the statute of limitations of the settlement.
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