·        The taxpayer will have to pay 89,000 euros to two companies that sold for less than the purchase value

Author: Eva Díaz

Source: Editorial 3/10/2024

Two new Supreme Court rulings activate the State’s patrimonial responsibility and force it to return to two companies what was paid for the Tax on the Increase in Value of Urban Land (IIVTNU), better known as the municipal capital gains tax, having assumed the tax without making a profit.

To request the amount collected for the municipal capital gains tax, the Supreme Court requires that the taxpayer can prove that in his case there was a capital loss. That is, that he sold below the purchase value and, even making the transaction at a loss, the tax was paid. Taxpayers who did have capital gains, even if the tax was cancelled, or those who, even if they did not have it, have no way of proving it, are excluded from the possibility of demanding compensation.

This tax is levied on sales of land and property in which the owner has obtained capital gains (profits). However, the Constitutional Court (TC) had to annul part of the rule in a ruling of October 26, 2021, because it allowed taxing taxpayers who had carried out the operation at a loss. That is, they had sold the property below the value at which they bought it.

The Supreme Court already opened the door on February 14 for the State to respond to these taxpayers for patrimonial responsibility (it is responsible for the poor legislative technique), provided that the taxpayer could provide evidence (such as the deeds of sale) of the loss in value of the land or property.

So far, there have only been three rulings by the high court that condemn the State to assume patrimonial responsibility, the first from last March, and the last two from this September 18, both reports by magistrate Carlos Lesmes Serrano. One of them analyses the litigation of a company that bought land in 2006 for 2.6 million euros and sold it in 2014 for 1.19 million. Despite the obvious losses, the city council paid it 71,563 euros in municipal capital gains tax.

In the second case, which is very similar, another company bought a property in 2006 for 348,890 euros and sold it in 2015 for 217,800 euros. Even so, it had to pay 17,536 euros in municipal capital gains tax.

The rulings remind us that the Constitutional Court did not annul the tax, but the calculation method, since it only allowed the objective estimation method to be used to quantify the tax base (which could lead to “excessive or exaggerated rates for the taxpayer”), and did not allow the direct estimation method to be used, which the legislator later included after the ruling. This second method allowed taxpayers to prove that a non-existent capital gain was being taxed.

Therefore, the Supreme Court concludes that “it caused a financial transaction to be taxed (an onerous transfer of a property on urban land) in which the existence of an increase in value was not proven and therefore, a manifestation of real or potential wealth that could cause a tax compatible” with non-confiscation.

“The set of evidentiary material that the appellant here provided in the administrative and then jurisdictional proceedings and that it has reiterated before the Court, allows us to have proven the non-existence of such an increase, with the resulting consequence of the unconstitutionality of the taxation required in the case at hand,” the court adds.

The State’s liability for property arises when damages arise from a law that has been declared unconstitutional, provided that the application of the law has caused an injury that the individual has no legal duty to bear and that the damage is economically assessable and individualized in relation to a person or group of people.

It should be noted that, to date, the majority of the Supreme Court’s rulings are against applying State liability, given the difficulty for taxpayers to prove unlawful damage caused by the State’s poor legislation.