There are times when the tax authorities miss the mark, and this is one of those moments. The treasury will be required to refund the tax to all individuals affected by the application of a law that the Supreme Court now deems unconstitutional. This ruling will force Hacienda to declare the collection of this tax void, even in cases where the tax assessment is already final.
In a decision issued on February 28, the Supreme Court overturned the tax authority’s stance on this levy within the General Tax Law. To reach this conclusion, the court revisited prior jurisprudence, including several May 2020 rulings. It determined that there was no limitation on the effects of the unconstitutional declaration previously made by the Constitutional Court, even for tax assessments that had become final.
End of municipal capital gains as a default recovery
The high court stated that it is possible to recover payments made for municipal capital gains in final tax assessments when the transaction that triggered the assessment did not involve any actual increase in the value of the land, and therefore paid a profit that did not materialize. As a result, taxpayers may seek reimbursement from the tax agency if they meet the specified requirements.
The ruling marks a turning point, because there had been no automatic process to review final assessments that were not challenged within the established period, even if they relied on regulations later declared unconstitutional. The Supreme Court also clarified that there is no fixed time limit from when the tax was charged, meaning claims can be made at any time. Normally, Hacienda has a four-year window for such claims, but this case eliminates any cap to rectify all cases of taxation injustice.
What is the IIVTNU?
The Tax on the Increase in the Value of Urban Land, also known as municipal capital gains or the capital gains levy, is a local tax that taxes the rise in value of urban land when its property is transferred or when a real right of enjoyment over it is constituted or transferred (such as a usufruct or surface right). It is calculated by multiplying the cadastral value of the land by coefficients that depend on the time the land has been held by the transferor.
The tax must be paid to the city hall of the municipality where the land is located within 30 days of the transfer date. The levy should be declared by the seller in a typical sale; or by the recipient of the land in an inheritance scenario. While payment is mandatory, properties that did not experience any value increase during ownership are exempt from the process. However, moving forward, no one will have to declare the capital gains as unconstitutional when appropriate.
In light of the court’s guidance, the approach to municipal capital gains now acknowledges retrospective relief for those affected, and it clarifies the path for challenging or recuperating amounts paid under a regime later found unconstitutional. This development affects both inherited and inter vivos transactions, reshaping how local governments administer and defend this tax within the framework of constitutional boundaries.
Readers seeking help with their specific inherited or divorce-related tax matters can consult a qualified attorney who specializes in family law and tax implications. The legal landscape surrounding capital gains taxes continues to evolve as courts reinterpret the relationship between local taxation and constitutional guarantees, and as administrative bodies adjust their procedures to reflect these changes. Attribution: Supreme Court decision of February 28, 2024; General Tax Law provisions; municipal capital gains regulatory framework (Source: Supreme Court, General Tax Law, municipal regulations).