To talk about the Tax on the Increase in the Value of Urban Lands, more commonly known as Municipal Capital Gain, we will have to go through, first, to analyze the concept of land value managed by the Town Halls. It is not, in fact, something simple, as it varies depending on the interest of the municipal corporation in question, that is, the municipalities use one or another concept of land value when calculating what the taxpayer has to pay .
Indeed, we must not forget that the Capital Gain is a tax levied on the increase in value experienced by urban land, increase that becomes evident as a consequence of the transfer of ownership. In other words, the tax will not accrue if the asset that leaves the estate has a rustic nature, or if the urban property has lost value from the moment of its acquisition.
The tax problem comes from the interpretation of the two concepts that LABE Lawyers understood as the center of the legal configuration of the tax, which are the value of the land and the increase in value, Well, in our years of procedural experience, in defense of both defendant municipalities and plaintiffs, we have seen that most of the judicial decisions revolve around these two concepts.
The reality is as follows: the Regulatory Law of Local Finance establishes that the value of the land “It will be the one determined at that time for the purposes of Real Estate Tax”. That is to say, that the value that the Town Councils have to take into account for the purposes of the tax settlement It is the cadastral value of the land, and specifically the cadastral value of the land.
And this reality was upset by the famous Judgment of the Constitutional Court that declared unconstitutional the section of the legal precept that established this reference for the calculation of the Capital Gain, at which point the municipal and judicial chaos occurred regarding the resolution of legal disputes related to Capital Gains is concerned.
From that moment, we are living a moment in which the municipalities try to justify the liquidation of the tax in the value that interests them the most, being able to take as a reference the comparison between the purchase and subsequent sale value, the value of the square meter of the property after appraisal carried out by the members of the corporation, or the cadastral values.
In other words, given the legal vacuum that has arisen as a result of the declaration of unconstitutionality of the cited article, the City Councils go to one value or another according to their interest:
- § If the cadastral value has decreased since the acquisition of the land, but the notarized value of the sale is higher than that of the purchase, the City Council will claim that the individual has obtained a profit, therefore it will settle the tax;
- § If the seller has lost money with the sale, but the cadastral value of the land has increased, the City Council will take such cadastral value as a reference to justify the fee, and;
- § If both the cadastral value of the land at the time of sale and the notarized sale value are lower in relation to their correlates at the time of acquisition of the land, it is very likely that the City Council will carry out an expert report in which it is concluded that the market value of the square meter has increased from purchase to sale.
The main problem of these assumptions is found in the Contentious-Administrative Courts, since there are numerous Contradictory court decisions to resolve virtually identical cases. And it is that this disparity of resolutions is justified by the arguments carried out by different professionals of the Law, since it must not be forgotten that in the face of these legal gaps, the final decision depends on the Judge, who acts moved by the arguments of the lawyers of the parts.
Therefore, it is clear that the first of the concepts, that is the value of the land, will substantially influence the second, that is, the increase in value, since it is very likely that depending on the reference value that we use, it can be said that there is an increase or, on the contrary, a detriment of the value.
And for these purposes it is extremely important to have a capital gains expert that can counteract the arguments of the City Council, using in each case a personalized argument based on the factual antecedents of the case, with a solid jurisprudential study based on the procedures experienced.
Since LABE Lawyers, we work to ensure the specific interests of our clients. For this we use the experience acquired in the defense of Public Administrations, with the hope that the Tax will begin to be applied correctly, since the legal vacuum generated by the Constitutional Court implies a clear detriment of the citizen who ends up paying a tax, which in most cases is applied incorrectly in order to generate a profit for the City Council.
Adolfo Pérez is LABE Associate Attorney, Capital Gains Expert