The first step, with the purpose of giving to this article a technical point of view, and also a practical at the same time and understandable for any citizen with no legal knowledge; I would like to give a definition of the Municipal Added Value Tax, that under my concern adapts itself to this criteria: The Municipal Added Value Tax, is a tax that is calculated based in a coefficient, under which you have to pay a fine for the added value of a land property at the time of selling a house.
After that, if the cadastral value of the land increases, which you have to pay, and no matter if the owner has lost the money by selling. Indeed, that was the application and interpretation that have been developed regarding to this tax until recently. Of course, during the expansive economic cycle previous to the crisis, that fortunately is behind us now; no doubts about that, year after year those “real” added values existed in any operation or conveyance that was done, and thus, almost nobody questioned about the convenience of this tax. It means, the cadastral values were taken as a reference, in an automatic way and just for the sake of time passed, and the land value increased.
The reality is that in the last couple of years what happened and is still happening, was just the opposite. So, this fact has generated a controversy inside of the social environment and finally in the legal one, and that was revealed with the sounded Sentence of Tribunal Constitution of Spain in May 11th 2017; which declared in its final decision that I will quote now: “Estimate the question of unconstitutionality no. 4864-2016 and, in consequence, declare that the articles 107.1, 107.2 a) and 110.4, all of them from the restated text of the “Ley Reguladora de las Haciendas Locales”, passed in “Real Decreto Legislativo 2/2004, in March 5th, are unconstitutional and void, but only in the measure that are submitted to a tax situations where there is nonexistence of added value.
Then, these articles 107 and 110 of the LHL (“Ley Reguladora de las Haciendas Locales”) -meaning, the one that develops the local taxation system (City and Provincial Councils)- are set to rule for establishing the added value of those land properties as a taxable transaction, which results the tax rate in the Municipal Added Value Tax. And regarding to this law, the Councils as of now, have been applying this regime as an autopayment -being the contributor who has to deposit this rate in the established form on the municipal regulations -and in fact, the majority of Councils have not suspended this tax yet.
The Tribunal Constitution in its final decision made a reference to the imperative character of these articles, because there isn´t any other alternative method to demonstrate if that added value really exits or not, violating in this way the principle of economic capacity gathered in the article 31.1 of the Spanish Constitution. Being in the praxis which is linking the tax just the titularity of the land, meaning that, the taxes that are considered as “wealth statements”, are those that in many cases are unexisting or fiction.
Meanwhile, there have been an avalanche of reclaims and sentences favourable to the contributors, being the ball on the roof of the Public Administration, waiting for a taxation reform that is still delayed -with almost 8 months if we have into consideration the Sentence of the Constitution Tribunal- and it will come by the hand of a more deeper financing reform of the Municipal Entities, which makes us think that while it is passing of the parliamentary submitting it is not going to come until some months later.
Well, and after this “brick“ text, many of you are asking: so, do I have to pay the Added Value Tax or not? And here it is, where the final goal of this article is, like I said at the beginning, it is only through some light in this matter, and trying to do it as I often do with my clients, give some tools and solutions that leads them to make the best decision as possible, based on objective data and of course, always subordinated to a previous analyse of each particular case.
And like everything happens in the end, and as my uncle Rafael would say –who is an “old” businessman, that voice from the experience of more than 50 years sailing with the business waters- “Who really knows about these things, is the one who has done it before”. Meaning, that not all the lawyers are specialized in Added Value Taxation, nor all the Councils are acting in the same way against this fact, nor all the houses are being sold losing money, etc. And so, as a first step we need that previous analysis to which we mentioned in the paragraph before this, and we can not determinate the most convenience solution for each client.
As a general rule, talking from experience of applying this criteria for more than 6 months, and of course, after receiving advice from advocators specialized in this matter- although there are not absolute trues- I recommend to my clients that are clearly “selling on losses”, presents a form in the municipal register of the Council, asking for the exemption of the tax; understanding that it is suspended, and thus there is no way of paying it, once the Constitution Tribunal -as a maximum instance inside of the Spanish legal framework system- issued the mentioned sentence, with no possibility to reclaim it.
Currently, this is the situation that we have, and although it is already being sentences -no further the one of the “Juzgado Contencioso Administrativo numero 2 de Barcelona” – which are exemptions to the contributors of paying the Municipal Added Value Tax even when an added value existed; however, we will have to wait for a few months more, to see what happens regarding to this tax, because knowing the voracious collector system that moves the machinery of the Public Administration of this country, it´s not weird, that this fine could be exchanged for another different nature, but just with the same purpose. And if not, wait and see.