Published by gcla

15 July 2017

Death and taxes. Even in these times of uncertainty, those two you sure can count on. Or maybe not so much now?

In its judgment of May 11th, 2017, the Constitutional Court has recently declared unconstitutional the provisions of the Council Taxation Act which regulate the calculation rule for the municipal capital gains tax.

The reason is not too difficult to understand. The law established a calculation mechanism which taxed transmissions whether there was an increase in the value of the property or not.

Since the real estate market crash in 2008, many families and companies had seen themselves forced to sell at a loss. Debts and mortgages were often more excruciatingly painful than losing some value selling a beloved apartment.

As clear as it was that there was absolutely no gain in such sales, Councils kept harvesting taxes for a fictional capital gains, (ab)using the legal mechanism that allowed them to collect a tax based on a fictional increase in property value. The injustice was aggravated by the fact that councils have a lethal instrument at their disposal: patronatos de recaudación, provided by the diputaciones provinciales (provincial administrative bodies), to serve documents, collect monies and seize assets in case the taxpayers do not obey diligently.

It has taken years of litigation to finally convince the Constitutional Court to expel such a monstrous rule from the law.

The reason why councils kept doing this is also clear. The constitutional system of distribution of competences makes municipal councils provide an endless variety of public services for which they are insufficiently funded. They need money. They need to collect taxes. So, they used a legal resource that was at their disposal.

But we are finally coming to the core of this post: councils and town halls have interests. And they often do not coincide with those of the citizen. They have an interest and they pursue it, at whatever cost. So, shake off that widespread misconception that the administration is always right. It is not. Sometimes they make mistakes. And sometimes, it is deliberate.

So next time you receive a ‘letter’ from a council or a patronato de recaudación, take a minute to read it calmly, or consult with a solicitor. They might not be as right as they seem.

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