In recent times we have seen how different judicial pronouncements have occurred that have called into question the application of the Tax on the Increase of the Value of Urban Nature Lands, commonly known as “municipal capital gain”. Specifically, in those transfers of real estate in which the seller had not made a profit or even generated a loss, a situation that unquestionably became widespread due to the outbreak of the real estate crisis.

These judgments have admitted different substantive issues to estimate the resources raised against the controversial tax, since we remember that in the case of the judgment of the Court of Cuenca of September 21, 2010, it is estimated how to quantify the base proposed by the taxpayer or, in most cases, it has been directly assumed that the transfer with losses means that the taxable event of goodwill has not been made (among others the STSJ of Catalonia of March 21, 2012, STSJ of Madrid of 11 December 2013, STSJ of the Valencian Community of July 20, 2015).

Parallel to this barrage of resolutions favorable to the taxpayer, it has been the judicial bodies themselves that have raised issues of unconstitutionality in order to obtain a ruling, regarding the infringement or not of the principle of economic capacity and prohibition of confiscatoriness, which allow to resolve the issues they know. (Order of the Contentious-Administrative Court, No. 3 of Donostia- San Sebastián de February 5th 2015 and Order of the Administrative Litigation Court No. 1 of Vitoria-Gasteiz, of December 22th 2015, Order of the Contentious-Administrative Court, No. 22 of Madrid de December 15th 2015).


First pronouncement of the Constitutional Court, first battle won by the taxpayer.

 On February 16, 2017, the first Judgment of the Constitutional Court in this matter has been issued in full, resolving the issue of unconstitutionality raised by the Contentious-Administrative Court of San Sebastián.

In this specific case, the company Bitarte, SA transferred a property for 600.000 euros that it had acquired for 3.101.222,45 euros, demanding the City of Irún a capital gain in the amount of 17.899,44 euros. Consequently, the taxpayer appealed said liquidation before the Contentious-Administrative Court of San Sebastián, which raised the issue of unconstitutionality now resolved, because he understood that the tax regulations could be contrary to the principle of economic capacity and the right to judicial protection effective.

As expected, and as we all yearned to happen, the Constitutional Court has resolved that the regional regulations are contrary to our Magna Carta to the extent that situations of non-existence of value increase are subject to taxation, specifically says:


“We are in the presence of an authentic legal fiction according to which the mere ownership of an urban land generates, in any case, its owner, at the time of its transmission and regardless of the real circumstances of each case, an increase of value subject to taxation, in respect of which, the norm does not allow to accredit a result different from that resulting from the application of the valuation rules it contains. ”


Likewise, the ruling also states that the unconstitutionality of the tax is not declared in its entirety but only certain precepts of the Foral Law. Inevitably, since the publication of the Judgment, the Government will be forced to modify the configuration of the norm in order to avoid taxing situations in which there is no real increase.

Application to state regulations?

 It highlights the fact that the Court inadmissible the question of unconstitutionality raised with respect to state regulations (articles 107 and 110.4 of the TRLHL) because it understands that the matter prosecuted only applies the regional regulations and it is not necessary to go further to issue a resolution.

Regardless of this, the articles declared unconstitutional have their namesake in state regulations, so this ruling sets a precedent, while other issues of unconstitutionality are pending, such as that raised by the Contentious-Administrative Court from Madrid, which should be resolved in the same direction.

This blow for one of the most controversial tributes of recent years in the highest instance, seems to be the beginning of the closing of the gap between municipalities and taxpayers, because the Government will not have another option to legislate according to the nature of the tax and economic reality.


Strategy: keep resorting if there is no profit

 Pending a legislative change and a ruling by the Constitutional Court regarding state regulations (predictably in the same direction), it would be advisable to:

  • On the one hand, that all those taxpayers who have transmitted a property in the last four years and have not obtained a profit in the operation, request the rectification of their self-assessment and return of the unduly paid income, keeping the way to appeal open (claiming, among other reasons, the unconstitutionality of state regulations) and,
  • On the other hand, that those taxpayers who have previously obtained a final decision dismissing an appeal against the liquidation of goodwill (provided that said resource had alleged the unconstitutionality subsequently declared), initiate the state's liability procedure, in the period of one year since the eventual sentence that we understand the Constitutional Court will issue shortly is published in the BOE.

It seems that this weapon that the Court granted to citizens on February 16, 2017, will allow them to win the last battle of this tax war.


Lawyer-TOMARIAL Lawyers and Tax Advisors

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