The transfer of land is subject to a municipal tax called Tax on the Increase in Value of Urban Land. This tax is calculated on the cadastral value of the land increased by a coefficient depending on the holding period of such piece of land by the taxpayer. However the legal computation of the taxable base results automatically into an increase in value subject to taxation, irrespective of the economic outcome of the transaction. In other words, the taxpayer must pay this tax even though an actual loss comes from the alienation of the land. This has been a controversial issue for long, especially in the context of the recent economic crisis in which prices of land had fallen and transfers resulting in a loss became more frequent.

On 16 of February the Spanish Constitutional Court partially upheld a prejudicial question raised by a lower Court regarding the above referred issue. In this sense, the Constitutional Court concluded that the current wording of the law regulating the Tax on the Increase in Value of Urban Land is unconstitutional as long as scenarios where no increase in value exists are subject to tax. This situation, says the Upper Court, is clearly against the business capacity principle enshrined in the Spanish Constitution which must be respected by any tax figure applicable in Spain. Even though the sentence refers to the law applicable in the region of Guipúzcoa, the same conclusion shall be suitable to the law applicable in the rest of Spain as they are both similar at this respect. It should be noted that the lack of an increase in value shall be duly supported.