The Rule of Law after the municipal capital gains tax was declared to be unconstitutional

On the 26th of October, 2021 we became aware of the fact that the method used to calculate the tax base of the Tax on the Increase in Value of Urban Land (hereinafter referred to as the IIVTNU) is unconstitutional, as is the way in which it has been removed from the legal system by the Constitutional Court (hereinafter referred to as the TC) in view of the possible crisis of the Local Taxation.

This circumstance has stirred controversy in the legal world, whose specialists have called into question the survival of the Rule of Law, an idea that substantiated the lessons of Administrative Law, with GARCÍA PELAYO, the basis of which is established in article 1.1 of our Constitution as a defining note of our country: “1. Spain  is hereby established as a social and democratic State, subject to the rule of law, which advocates freedom, justice, equality and political pluralism as the highest values of its legal system”.

The essence of the Rule of Law is that all subjects: individuals, legal entities and even the Public Authorities are bound by the rule of Law. This means that the Legislature itself, which establishes the rule that provides for self-limitation, complies with the promulgated law, that is to say, the Constitution. Therefore, considering the events at the end of this year the debate about the Rule of Law seems logical.

The declaration that the IIVTNU is unconstitutional was preceded by repeated warnings to the legislature by the TC about the need to modify the IIVTNU regulation and adapt it to the principle of economic capacity, without there being any response to such mandates.

In 2017 we received the first warning in the STC (Constitutional Court Judgment)59/2017, dated the 11th of May, which stated that it was impossible to tax inexistent situations of capital gains and it compelled the State legislator to modify the IITVNU regulation. In 2019, with the STC 126/2019, dated the 31st of October, the TC re-emphasised the need to adapt the legal system of the IIVTNU to the constitutional requirements and therefore avoid

overburdening the taxpayers by taxing them way beyond their personal gain. And this brings us to 2021, the year when the TC in its STC 182/2021, dated the 26th of October, declares that the method used to calculate the tax base of the IIVTNU is unconstitutional and it definitively eliminates the existing tax policy configuration.

When faced with this blow, for the Local Authorities in particular, which could see their main source of income being undermined, the Government, through the Royal Decree-Law, amends the regulation, which was already irrelevant seeing as the former one had been removed from the legislation, to therefore keep the Tax alive. This is all accompanied by an unusual procedure by the TC, because we did not find out about the judgement through its publication in the BOE (Official State Gazette), but rather through a press release from the TC itself in which the declaration of unconstitutionality was announced and the text of such was publicised in its website weeks after.

Unlike judgements given before this one (STC 59/2017 and 126/2019), in the STC 182/2021 a limitation on its effects was established –against the provisions established in article 164.1 of the Spanish Constitution and 38. One of the Organic Law of the Constitutional Court- which make it impossible to review all those “consolidated” situations, that is to say, the tax obligations which, even before the deadline to file an appeal or request an amendment, were not appealed and their amendment was not requested when this declaration was pronounced, that is to say, on the 26th of October, 2021.

In the light of this limitation, the right to the effective judicial protection could be understood to have been breached when one of the main avenues of appeal for the taxpayer was closed without enough legitimacy, because, although the patrimonial liability of the State legislator process does indeed exist, it contains requirements of such high standards that it is almost impossible to enforce it. In this sense, we are waiting to find out what position the Court of Justice of the European Union (CJEU) adopts on the matter C-278/20, in which the adaptation to the principle of effectiveness and equivalence of the patrimonial liability system of the Spanish State legislator is examined. Even though the action taken by the European Commission against the Kingdom of Spain is only in relation to the patrimonial liability of the State legislator due to the breach of the European Union Law, the survival of the overall patrimonial liability system of the State legislator does not seem to be feasible

on the account of a possible unfavourable ruling from the CJEU, seeing as both systems share the same or similar requirements to all intents and purposes.

The principle of equivalence points out that the requirements established by the national laws on compensation for damage caused by acts that violate the European Union Law could not be less favourable than those that are applicable to similar internal claims, and the principle of effectiveness implies that certain requirements cannot be formulated, which means that in practice they make it impossible or extremely difficult to get compensation.

If the CJEU adopts the position of the Advocate General of the CJEU, Maciej Szpunar,  in his conclusions drawn on the 9th of December, 2021, we would undoubtedly be faced with a possible renewal of our patrimonial liability system of the State legislator, seeing as he thinks that the Kingdom of Spain does not comply with the principles of effectiveness and equivalence, because it keeps the system of patrimonial liability of the State legislator in force, both the internal one and that of the European Union Law. Nevertheless, seeing as the conclusions drawn by the Advocate General are not binding for the CJUE, we hope to find out what its final decision is and, in turn, that the Spanish legislature does not take too long to amend this regulation.

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