The lawyer warns that the new calculation method does not solve cases of disproportionate taxation due to double taxation.

The lawyer warns that the new calculation method does not solve cases of disproportionate taxation due to double taxation.

The lawyer warns that the new calculation method does not solve cases of disproportionate taxation due to double taxation.

The Constitutional Court.

There are not a few news or comments that have been reflected in different media in light of the ruling issued by the Constitutional Court on October 26, which, as is known, is available on its website, but has not yet been published in the Official State Gazette.

To avoid the lavishness of texts whose objective is to analyze the content and effects of said ruling, it is appropriate to go one step further and consider whether the new calculation formula contained in Royal Decree-Law 26/2021, of November 8, extinguishes the problem that revolves around the Tax on the Increase in the Value of Urban Land, commonly known as municipal capital gains.

Although it is true that trying to adapt the method of determining the taxable base of said tax to the principle of economic capacity is progress, it is no less so that there is another latent aspect that should not be sidelined: economic double taxation with other taxes.

In case there is any doubt, double economic taxation occurs when the same income is subject to taxation by two or more taxes, even if the taxpayer is different.

The latter is precisely what happens between the municipal capital gains and the Personal Income Tax in onerous transfers of real estate and, if the transfer were lucrative, the same would happen with the Inheritance and Donations Tax.

For the first of the aforementioned assumptions, the current regulations allow a reduction in the tax base for the amount that has been entered as municipal capital gains (article 35.2 of the Personal Income Tax Law) when the only way to eliminate double taxation would be by articulating a tax deduction of said amount.

In other words, the reduction of the tax base, which is articulated as a reduction in the transfer value for the amount of the municipal capital gains quota, only mitigates double taxation, but does not eliminate it.

The reduction of the tax base mitigates double taxation, but does not eliminate it

On the other hand, regarding the economic double taxation between the municipal capital gain and the Tax on Inheritance and Donations in the lucrative transfers of real estate, the law provides no remedynot even to alleviate such a situation, which shows the seriousness of the matter.

It should not be forgotten that, despite the content of the recent ruling of the Constitutional Court, its previous declarations of unconstitutionality continue to apply, prohibiting the taxation of situations of non-existence of increases in land value and situations in which the tax completely exhausts the benefit obtained or suppose a disproportionate burden in relation to the real capital gain.

Well, note that the lack of provision for a deduction in the amount of the Income Tax of Physical Persons of the amount entered by the municipal capital gains could lead to exhausted, in whole or in large part, the real gain as a result of double taxation.

It seems clear that, in order to ensure that the payment of the municipal capital gain does not exceed the economic capacity of the taxpayer, not only must its calculation formula be adapted, but also prevent the same income from being taxed by several taxes and that such a situation does not adjust to the payment capacity of the affected party.

That is why, before allowing any bombastic speech to affirm that the adaptation of the regulations to the judgment of October 26, 2021 closes all the issues related to the constitutionality of the municipal capital gain, it should be repaired on whether it is wanted allow the maintenance of economic double taxation that citizens do not have the legal duty to bear.

*** Alberto Prieto de León is a partner at Aldea Arellano & Prieto Abogados.

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