The Tax on the Increase in the Value of Urban Land, commonly known as capital gains, is a direct municipal tax of an optional nature. The value of the land that is taken into account is, in general, the cadastral value.
The local tax is theoretically levied the revaluation of real estate at the time of the sale and its calculation formula causes payment to be required when losses are recorded, that is, the one who sold the apartment having losses for a lower value than the one he bought it, had to pay the City Council as if it had won.
It is paid because the cadastral value says it and not because it is the real value, nor because it responds to a real profit, allowing the City Councils an important source of income even during the bursting of the real estate bubble.
Now the Plenary of the Constitutional Court in Judgment of February 16, 2020 has declared unconstitutional several articles of the regional regulation on the Tax on the Increase of Urban Land in Guipúzcoa, understanding that it goes against the principle of economic capacity to pay for this tax when the sale of the property has been made at a loss, considering that it is not expressive of the economic capacity of the taxpayer as required by the Constitution.
Thus, in operations in which there is capital loss, this circumstance would violate the provisions of the Article 31 of the Spanish Constitution that establishes: "Everyone will contribute to sustaining public expenditures in accordance with their economic capacity through a fair tax system inspired by the principles of equality and progressiveness that, in no case, will have confiscatory scope".
Declares unconstitutional partially and invalid the precepts questioned "only when they subject inexpressive situations of economic capacity to taxation, preventing taxpayers from proving that an increase in value did not actually occur ".
In this way, the Constitutional Court considers that when there is a drop in the value of the land, the tax or obligation of the taxpayer to pay this tax is not generated for the transfer of the property. All will be test question by the affected taxpayer, and without an increase, it will not be constitutional to pay this municipal tax.
Ultimately, the Constitutional Court ruling declares unconstitutional the Basque Country's regional law in the event of losses, but not the state law. But the relevance of this Judgment is that the articles declared unconstitutional are basically a copy of those found in the Local Treasury Law, therefore it could be alleged throughout the national sphere. We will see when and how the amounts will be returned. The municipalities could benefit from the ruling until later the Constitutional Court pronounces again, although the immediate effect is that they will no longer be able to ignore the resources of the taxpayers in which they indicate that they have sold at a loss.