The Constitutional Court decision of October 31st, 2019 has been mentioned by the media, referring to banning the confiscatory taxes. According to this legal concept, “the tax burden cannot exceed the benefit” and, in the specific case they analyzed, with a theoretical benefit of € 3,473.90, the City Council of Majadahonda (Madrid) settled the tax for € 3,560.02.
This effect is not new at all, given that there have been many previous judgments of the aforementioned Court that have dealt with the concept of confiscatoriness; It does not even provide any great advantage (despite what has been published) since the cases in which the gain is lower than the tax do not represent , in my opinion, a large percentage of the set. On the other hand, the confiscatoriness has been declared in other occasions when the tax burden corresponds to a large part of the benefit, but not the whole amount.
The really important thing, the small step taken, is that the Constitutional Court has accepted the formula in which, in order to calculate the benefit of the vendor, it is allowed to apply the derived expenses, both at the time of acquisition and transmission.
In fact, so far the Supreme Court had banned this technique (which, surprisignly, is allowed in other taxes, such as personal income tax) by setting the benefit for the difference between the purchase price and the sale price. But the Constitutional Court has come to amend the plan by declaring the validity of the formula.
In the case prosecuted, the appellant bought a property on January 30, 2003 for an amount of € 66,111.33 and then sold it on February 15, 2017 for an amount of € 70,355, having a gross benefit of € 4,243.67 and, if we deduct the expenses and taxes incurred, the net profit is € 3,473.90. The capital gains tax fee was € 3,560.02.
However, in my opinion, there is another much more important issue, whichis the main object of numerous lawsuits (of which we have held a hearing this week, as a challenge to a final balance of SUMA, in Torrevieja). And such is the possibility of updating the purchase price, by application of the CPI (either nationally or autonomously).
In fact, the amount of € 66,111.33 in 2003 does not mean the same as in 2017, given the increase in the cost of living (the CPI, as a whole, has increased by 30.7%). Therefore, in order to compare amounts that are different, we should be able to apply the CPI variation to the purchase price and so we would have an updated purchase price of € 86,407.50, which is higher than the sale price (€ 70,355 ) and, therefore, we wouldn’t even ask whether the tax is confiscatory or not, because there is a consolidated criterion that excludes these cases (when the sale value of the land is lower than the acquisition value) of the scope of the capital gains tax.
This last issue has already been the subject of some judgments in other Autonomous Communities, and is currently pending an appeal before the Supreme Court.
Personally, as a lawyer who practices in Torrevieja, I have raised all these questions before the Court. As soon as I receive the judgments of the Courts of Alicante and Elche, (since after the analysis the final balances granted of SUMA, sometimes the Court of Elche takes care of them and other times they just derive them to Alicante) I will keep you informed.