The method to set the tax basis of the Spanish Tax on the Increase in Value of Urban Land

We inform you that today, 3 November 2021, a judgment of the Spanish Constitutional Court has been published, dated 26 October 2021 (the "Judgment"), which declares the unconstitutionality and nullity of the article that regulates the method to set the tax basis of the Spanish Tax on the Increase in Value of Urban Land (the "Tax"). In this regard, it should be recalled that according to said article the amount of the tax basis is not the real increase in value of the urban land that is the object of the transfer, but an estimated value.

The novelty of the Judgment with respect to the previous judgments of the Spanish Constitutional Court on this same subject lies in the fact that the previous judgments declared the referred unconstitutionality conditioned to certain situations (specifically, the judgment of the Spanish Constitutional Court 59/2017, of 11 May, referred only to cases in which it was clear that there was no real increase in value, and the judgment of the Spanish Constitutional Court 126/2019, of 31 October, extended the unconstitutionality to cases in which the entire profit obtained in the transaction had to be used to pay the Tax). However, the Judgment declares now the method of calculating the tax basis unconstitutional and null in all situations, forcing that a new law is approved to set a new methodology of determination of the tax basis.

In view of this situation, the main following practical questions arise:

Is it possible to recover amounts paid before 26 October 2021 on the basis of the rationale included in the Judgment?

The Judgment denies this possibility to those tax assessments that have not been challenged before 26 October 2021, as well as to tax self-assessments whose rectification has not been requested before that date.

It is still possible though to challenge the tax paid on the basis of the rationale contained in the previous two judgments above- mentioned.

As a consequence, the right of taxpayers to challenge a tax assessment or to request the rectification of a tax self-assessment within the legally established term is being severely restricted, thus limiting their right to effective judicial protection.

How will the Tax accrued on transfers taking place after 26 October 2021 be calculated?

As a result of the Judgment, it is impossible to assess and self-assess the Tax in those transfers that take place after 26 October 2021, as well as in those transfers in which the Tax had accrued before said date and were pending to be assessed or self-assessed.

In view of this situation, the Government has announced that a new law will be drafted to establish a new method for calculating the tax basis. We cannot rule out that the new regulation could be retroactive to the date of the Judgment or to the date of its publication, although such scenario may not be compatible with the Constitution in certain circumstances.

We will keep you informed as soon as new information becomes available.