Pay or not the municipal capital gains? the experts speak

Local officials and lawyers consulted recommend not paying the municipal capital gains after yesterday the Constitutional Court announced that, in a forthcoming sentence,

Salvador Almudéver, member of the Governing Board of the Association of Secretaries, Auditors and Treasurers of the Local Administration (Cosital) of Valencia, considers that “although what was disclosed yesterday is an informative note without legal value, I believe that a person who, for example , sold a house yesterday, you should not practice liquidation”.

“In fact,” he adds, “the ruling announced yesterday annuls three sections of the article that determines the taxable base of the tax, and with the annulment of this article, the entire tax is annulled. Without a basis for calculating, the city councils will not be able to liquidate”.

The lawyer Eduardo Triviño, a specialist in Banking and Consumer Law, agrees that, in this context, for now, “no liquidation should be presented and, if it were the Administration that presented it, it should be stopped, because it is based on a norm that is going to be annulled”.

Claims to municipalities

Triviño also adds that “if the capital gain has already been paid in the last four years, it must be claimed because, at least in its amount, it may not be legal.” And this is one of the key aspects of yesterday’s ruling in the judgment of Salvador Almudever: “the ruling declares the intangibility of the existing firm situations prior to the sentence. This is a very big problem, we already experienced it in 2017. What is What is meant by intangibility of firm taxes? There are problems in determining what a firm situation is, it is not a very clear legal concept”.

The real estate consultant Eduardo Molet also agrees: “the articles of the Local Treasury Regulating Law, which established the method to liquidate the capital gains tax, had a confiscatory nature due to the method to determine the tax base.”

illegitimate calculation

Triviño explains that “with regard to rates, two aspects are key, the first is that there must be a taxable event, and the second is that the taxes must be progressive. That is, without there having been a certain increase , there can be no tax. But there must also be progressivity, the same rate cannot be applied regardless of the base”.

“This was something known by the legislator, in reality it is a reality that emerged from the real estate crisis, when sales began to be produced at a loss or with very little profit,” he adds.

At least, it was something known since the TC ruling of 2017, but “for years a law that should have been changed has continued to be applied. And the serious thing is that the municipalities are delaying the payment of amounts improperly paid. The average delay in the subscription it is being four years, and this has been aggravated by the covid”, he concludes.

The same points out the real estate consultant Eduardo Molet, “we real estate experts saw it coming, since for four years the Constitutional Court annulled in judgments the liquidations when the taxpayers demonstrated a disability in the transactions, that is, when there had been losses”.

Almudéver considers that “high litigation is foreseeable.” In addition, we are in the middle of elaborating the budgets. In large and medium-sized municipalities, or in tourist areas, the municipalities are going to have a hard time”.

The president of the Spanish Federation of Municipalities and Provinces, Abel Caballero, estimates that capital gains are around 2,500 million euros.

The Constitutional Court has ruled in successive rulings (from 2017 and 2019) that the collection of the municipal capital gains tax cannot be applied when there are losses, nor can it result in a fee greater than the increase actually obtained by the citizen.

These sentences were annulling the consequences of a calculation system that, finally, has been declared unconstitutional as a whole.

For this reason, the experts consulted point out that the executives of Mariano Rajoy and Pedro Sánchez should have reformed the norm and prevented it from creating a legal vacuum when it was annulled.