Tax on increase in urban land value: the tax cannot be collected on transactions performed before November 10, 2021

A constitutional court judgment delivered on October 26, 2021 (published in the Official State Gazette -BOE- on November 25, 2021) held that certain articles of the legislation on the tax on increase in urban land value were unconstitutional and null and void, leaving a legal void in relation to determining the taxable amount which stood in the way of assessment, verification, collection and review of this local tax, and therefore, its enforceability (alert dated November 3, 2021).

That legal void was filled following the approval of Royal Decree-Law 26/2021, of November 8, 2021, adapting the revised Local Finances Law to the Constitutional Court’s case law. That decree-law was published in the Official State Gazette (BOE) on November 9, 2021 and came into force on November 10, 201 (alert dated November 9, 2021).

Since that judgment, high numbers of borderline situations have been emerging which are not being interpreted uniformly by the various local authorities and will have to be decided in the courts. Examples include:

a. Transactions performed before the Constitutional Court's judgment was delivered (October 26, 2021), whereas their assessment or self-assessment periods fall after that date.

b. Transactions before October 26, 2021, assessed before then also, although their payment date occurs on a later date; or their payment date is earlier, but the payment was deferred or split at the taxpayer's request, and the periods for paying the debt end after that date.

c. Transactions performed between October 26, 2021 (date when the court's decision became known) and November 10, 2021 (date of the entry into force of the legislative amendment mentioned above).

In relation to this exact same scenario, the Directorate General for Taxes (DGT), in resolution V3074-21, dated December 7, 2021, examined the treatment of transactions performed up until November 10, 2021.

According to the DGT, these transactions have to be reported regardless, because the taxable event has occurred and the tax has become due.

It concluded, however, that in these cases there will be no debt to pay, consistently with the constitutional court judgment.

In line with those findings, a great many courts are now accepting that local authorities should treat as invalid any assessments or self-assessments of the tax on increase in urban land value that had been challenged by taxpayers before October 26, 2021 and which, on that date, had not been the subject of a final decision in a judgment with res judicata effect or a final administrative decision. One such court is the Catalan High Court in a judgment dated December 22, 2021 or Castilla-La Mancha High Court, in a judgment dated November 15, 2021.