On 16th February 2017, the Constitutional Court (hereinafter, the “The Court“) declared partially unconstitutional the Tax on the Increase of Value of Urban Land (hereinafter, the “TIVUL“) in the region of Gipuzkoa.

TIVUL is accrued as a consequence of the sale of a parcel of urban land, and is calculated objectively based on its cadastral value and the number of years it has been the legal possession of the seller.                                           

Consequently, given the literal nature of the rule, it is currently possible that TIVUL is accrued in those instances where the value of the land has not increased, or may even have decreased. This situation has become more prevalent in recent years as a result of the economic crisis. In these instances, the Court considered that TIVUL “lacks any reasonable justification to the sense that, imposing on taxable persons the obligation to support the same tax burden as to those situations in which the value of urban land has increased, taxes situations of inexpressible economic capacity, which contradicts frontally the principle of economic capacity guaranteed by the Constitution in Art. 31.1”.

The Court subsequently reaffirms its criteria regarding Article 31.1 of the Spanish Constitution, by establishing that “In any case the Spanish legislator shall establish any tax taking as a reference actions or facts not reflecting real or potential wealth”. Thus, the Court confirmed that it shall not be possible to tax those factual situations in which the ability to pay cannot reasonably be considered to exist.

As a result of its conclusions, in situations where there has been no increase in the value of the urban land parcel, the Court declared Articles 4.1, 4.2.a) and 7.4 of the Gipuzkoa region´s Regulation 16/1989 to be partially unconstitutional and void.

On the same theme, on 1st March 2017 the Court issued a further declaration of unconstitutionality regarding Articles 4 and 7 of the Alava´s Regulation 46/1989. The grounds for its decision were exactly those as expressed above in relation to Guipuzkoa´s Regulation.

As a logical development of the above rulings, on 11th May 2017 the Court also declared unconstitutional Articles 107.1, 107.2.a) and 110.4. of the Royal Legislative Decree 2/2004. This established, on a national basis, that TIVUL should not be accrued in those cases in which the sale of urban lands produce no capital gains. As this latest ruling was made in reference to State Regulations, it will apply to the entirety of Spain and not only to the individual regions of Alava and Guipuzkoa.