Unconstitutionality of the method of calculating land value increment tax

The Constitutional Court has declared the unconstitutionality and nullity of articles 107.1 second paragraph, 107.2 a) and 107.4 of RDL 2/2004, which approves the revised text of the Law regulating the Local Treasury, that refer to the determination of the taxable base of the Tax on the Increase in the Value of Urban Land (commonly known as land value increment tax). The ruling considers that the method established for the calculation of the taxable base is illegal, since it determines that there has always been an increase in the value of the land, regardless of whether there has actually been such increase and the actual amount of such increase.

The ruling will have an important impact on municipal revenues, on the one hand, due to the operations that are signed from now on, for which this tax cannot be liquidated. On the other hand, because it opens the way to request the refund of undue payments for those cases that have not yet become final. For all these reasons, the Ministry of Finance has already declared that it will review the tax to adapt it to a new method of calculation and thus give both legal certainty to taxpayers and certainty about its financing to the municipalities.

The ruling is not yet public. In any case, Lozano Schindhelm recommends taxpayers who have not yet paid the land value increment taxfor a recent purchase to dispute it when they receive the liquidation and those who have paid it by the self-assessment method to request the rectification and request a refund of undue payments, within the legally established deadlines (usually 4 years from the payment of the tax, although if a comprobation procedure has been initiated, it will be necessary to consider the specific case).

Autor: Fernando Lozano
Autor: Claudia Cascant